Spinning the CEO Pay Ratio Disclosure
80 Pages Posted: 11 Nov 2019 Last revised: 1 Jul 2021
Date Written: July 1, 2021
We examine the consequences of mandating disclosure about the pay gap between the CEO and the median employee. Firms reporting higher pay ratios take actions to downward adjust the reported ratio and tend to include discretionary narrative attempting to portray their employee relations or compensation practices in a positive light (i.e., “spin”). Reporting a higher ratio is associated with adverse changes in employee morale and productivity, especially when the ratio is unexpectedly high. We validate the relation between disclosure and the employee response using several identification strategies. Firms utilizing more spin do not attenuate the negative effects on employees. Those with larger decreases in the pay ratio in the second reporting year reduce their use of spin in the disclosure narrative. Our results contribute to the emerging literature on human capital disclosure.
Keywords: pay ratio, human capital disclosure, mandatory disclosure, CSR, ESG
JEL Classification: G38, J31, J58, M12, M48, M52
Suggested Citation: Suggested Citation