Posted: 21 Sep 2014 Last revised: 11 Jan 2016
Date Written: January 3, 2015
There is significant debate about the usefulness of disclosing the relative pay of the CEO and the median employee (hereafter, pay ratio), as required under the yet-to-be implemented Section 953(b) of the Dodd-Frank Act in the United States. Using an experiment, we find that disclosing higher-than-industry CEO pay (relative to comparable-to-industry CEO pay) decreases perceived CEO pay fairness, does not affect perceived employee satisfaction, and increases perceived company ability to attract and retain CEO talent. Incrementally disclosing a higher-than-industry pay ratio in addition to higher-than-industry CEO pay decreases perceived CEO pay fairness and perceived employee satisfaction, and does not affect perceived company ability to attract and retain CEO talent. Finally, neither disclosing higher-than-industry CEO pay nor incrementally disclosing a higher-than-industry pay ratio affects investment potential judgments. Further analyses indicate that perceived CEO pay fairness is positively related to investment potential judgments.
Keywords: Dodd-Frank Act; CEO compensation; CEO-to-employee pay ratio; investor judgments
JEL Classification: J31, M41, M48
Suggested Citation: Suggested Citation
Kelly, Khim and Seow, Jean Lin, Investor Reactions to Company Disclosure of High CEO Pay and High CEO-to-Employee Pay Ratio: An Experimental Investigation (January 3, 2015). Singapore Management University School of Accountancy Research Paper No. 2015-30. Available at SSRN: https://ssrn.com/abstract=2498308 or http://dx.doi.org/10.2139/ssrn.2498308