Executive Compensation Disclosures: The Effect of Table Versus Formula Formats

Posted: 10 May 2017

See all articles by Yifei Xia

Yifei Xia

Shanghai University of Finance and Economics

Jun Han

The University of Hong Kong

Date Written: May 10, 2017

Abstract

This study investigates how the data presentation format of executive compensation disclosures affects investors’ compensation- and investment-related judgments and decisions. We examine the effect of these formats and their underlying mechanisms by conducting laboratory experiments. We compare bonus schemes presented in the table and formula formats and find an interaction effect between the data presentation format and outcome favorability. When the actual performance beats the performance targets (favorable outcome), investors are more likely to approve bonus awards presented in the formula format rather than the table format. However, there is no significant difference in approval ratings between different formats when the performance targets are missed (unfavorable outcome). In addition, we find evidence that the understandability and halo effects mediate the effect of data presentation formats on investors’ judgment. Our study contributes to several research areas including information understandability, the halo effect, compensation disclosures and shareholder voting. Our findings also have practical implications for both managers and investors.

Keywords: Data Presentation Format, Understandability Effect, Halo Effect, Bonus Scheme, Say on Pay

JEL Classification: M41

Suggested Citation

Xia, Yifei and Han, Jun, Executive Compensation Disclosures: The Effect of Table Versus Formula Formats (May 10, 2017). Available at SSRN: https://ssrn.com/abstract=2965891

Yifei Xia (Contact Author)

Shanghai University of Finance and Economics ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

Jun Han

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China
852 22415846 (Phone)

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