Compensation Discussion and Analysis (CD&A): Readability and Management Obfuscation

Posted: 27 Jul 2011

See all articles by Indrarini Laksmana

Indrarini Laksmana

Kent State University - Department of Accounting

Wendy Tietz

Kent State University

Ya-Wen Yang

Wake Forest University - Schools of Business

Date Written: July 26, 2011

Abstract

This paper examines the relationship between the readability of the CD&A section in proxy statements and management motives to obfuscate executive compensation disclosures. Using the CD&As in the 2007 and 2008 proxy statements, we examine whether the CD&A readability is associated with the proportion of CEO pay not related to the economic determinants of compensation. We note that the average CD&A is difficult to read. We find that firms with CEO pay exceeding the benchmark pay have a more difficult to read CD&A in the 2007 proxy season. The result suggests that, in its first CD&A report, top management tends to cloak its compensation practices when the practices are not tied to the economic determinants of pay. However, we also find those firms with CEO pay exceeding the benchmark pay improve the readability of their CD&As in the 2008 proxy season, suggesting that executive compensation disclosure improves under regulatory oversight and public pressure.

Keywords: disclosure, CD&A, executive compensation, readability

Suggested Citation

Laksmana, Indrarini and Tietz, Wendy and Yang, Ya-Wen, Compensation Discussion and Analysis (CD&A): Readability and Management Obfuscation (July 26, 2011). Journal of Accounting and Public Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1895505

Indrarini Laksmana (Contact Author)

Kent State University - Department of Accounting ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

Wendy Tietz

Kent State University ( email )

Kent, OH 44242
United States

Ya-Wen Yang

Wake Forest University - Schools of Business ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States
336-758-2934 (Phone)

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