Mind the Gap: CEO-Employee Pay Ratios and Shareholder Say-on-Pay Votes

52 Pages Posted: 20 Dec 2017 Last revised: 13 May 2020

See all articles by Steve Crawford

Steve Crawford

University of Houston

Karen K. Nelson

Texas Christian University - Department of Accounting

Brian Rountree

Rice University - Jesse H. Jones Graduate School of Business

Date Written: March 19, 2020

Abstract

We examine the Securities and Exchange Commission’s assertion in the Pay Ratio Disclosure rule that the ratio of CEO to employee pay is useful to shareholders for say-on-pay (SOP) voting decisions. Using an estimated pay ratio for a broad panel of commercial banks from 2010-2017, we find that voting dissent on SOP proposals is significantly higher in the top pay ratio decile, particularly when institutional ownership is high. Results are robust to controlling for a number of other determinants of voting dissent, including proxy advisor recommendations and executive compensation. Additionally, inferences using the first year of disclosed pay ratios in 2017 for S&P 1500 firms are consistent. However, we do not find similar results in the other deciles of the pay ratio in either sample, calling into question whether a cost-benefit analysis would support the disclosure requirement imposed by Dodd-Frank and implemented by the SEC.

Keywords: Pay Ratio, Say-On-Pay, Dodd-Frank Act

Suggested Citation

Crawford, Steve and Nelson, Karen K. and Rountree, Brian Robert, Mind the Gap: CEO-Employee Pay Ratios and Shareholder Say-on-Pay Votes (March 19, 2020). Available at SSRN: https://ssrn.com/abstract=3088052 or http://dx.doi.org/10.2139/ssrn.3088052

Steve Crawford (Contact Author)

University of Houston ( email )

4800 Calhoun Road
Houston, TX 77204
United States

Karen K. Nelson

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7567 (Phone)

Brian Robert Rountree

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

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