Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform

54 Pages Posted: 24 Oct 2019

See all articles by Wonjae Chang

Wonjae Chang

University at Buffalo

Michael Dambra

SUNY at Buffalo - School of Management

Bryce Schonberger

University of Rochester - Simon Business School

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management

Date Written: October 1, 2019

Abstract

Beginning in 2018, U.S. public firms were required to report the ratio of the chief executive officer’s (CEO) compensation to their median employee’s compensation in the annual proxy statement. We find that this pay ratio disclosure leads to declines in both total compensation and pay-for-performance sensitivity for CEOs relative to chief financial officers. Our results are stronger for firms that are more sensitive to populist political pressure. Consistent with popular press coverage playing a role in influencing firm responses to the standard, firms disclosing higher pay ratios garner more compensation-related media coverage around the filing of their annual proxy statements and display negative abnormal returns around proxy filings in the presence of elevated media coverage.

Keywords: CEO compensation, pay ratio, disclosure, corporate governance, pay-for-performance, media coverage

JEL Classification: G34, G38, M12, M52

Suggested Citation

Chang, Wonjae and Dambra, Michael and Schonberger, Bryce and Suk, Inho, Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3470215 or http://dx.doi.org/10.2139/ssrn.3470215

Wonjae Chang

University at Buffalo ( email )

3435 Main Street
Buffalo, NY 14214
United States

Michael Dambra (Contact Author)

SUNY at Buffalo - School of Management ( email )

354 Jacobs Management Center
Buffalo, NY 14260-1660
United States
716-645-3237 (Phone)

Bryce Schonberger

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management ( email )

342 Jacobs Management Center
Buffalo, NY 14260-4000
United States
716-645-3215 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
57
Abstract Views
302
rank
374,313
PlumX Metrics