Why Do Firms Disclose a Supplementary CEO-to-Median Worker Pay Ratio? Initial Evidence from Dodd Frank Act Section 953 (b)

36 Pages Posted: 18 Aug 2018  

Sun Moon Jung

Seoul National University

Natalie Kyung Won Kim

Seoul National University - College of Business Administration

Han Seong Ryu

Seoul National University

Jae Yong Shin

Seoul National University - College of Business Administration

Date Written: August 18, 2018

Abstract

In this paper, we analyze initial CEO-employee pay ratio data of 844 firms from S&P 1500 Index that disclose the pay ratio in their proxy statements from January to June 2018. Some firms in our sample choose to disclose a supplementary pay ratio, if they find the discretions allowed in the calculation of main pay ratio insufficient to fully adjust for firm-specific circumstances. Specifically, we examine whether the pervasive motives for firms choosing to disclose the supplementary ratio are to inform stakeholders of the true pay ratio or to manage stakeholders’ perceptions on the pay ratio. We find evidence consistent with both informational and opportunistic motives driving the supplementary pay ratio disclosure. When we focus on the sample of firms that provide a supplementary pay ratio higher than the main pay ratio, we find that firms’ decisions to disclose a supplementary ratio higher than the main ratio are driven by factors such as the quality of monitoring and the motives to signal truthful pay disclosure to investors above and beyond informational motives.

Keywords: CEO-to–the Median Employee Pay Ratio, Supplementary Pay Ratio, Pay Ratio Disclosure

Suggested Citation

Jung, Sun Moon and Kim, Natalie Kyung Won and Ryu, Han Seong and Shin, Jae Yong, Why Do Firms Disclose a Supplementary CEO-to-Median Worker Pay Ratio? Initial Evidence from Dodd Frank Act Section 953 (b) (August 18, 2018). Available at SSRN: https://ssrn.com/abstract=3234013 or http://dx.doi.org/10.2139/ssrn.3234013

Sun Moon Jung

Seoul National University ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Natalie Kyung Won Kim (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Han Seong Ryu

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Jae Yong Shin

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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