Spinning the CEO Pay Ratio Disclosure

80 Pages Posted: 11 Nov 2019 Last revised: 1 Jul 2021

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

Austin Starkweather

University of South Carolina Moore School of Business

Joshua T. White

Vanderbilt University - Finance Department

Date Written: July 1, 2021

Abstract

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

Boone, Audra and Starkweather, Austin and White, Joshua T., Spinning the CEO Pay Ratio Disclosure (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3481540 or http://dx.doi.org/10.2139/ssrn.3481540

Audra Boone (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Austin Starkweather

University of South Carolina Moore School of Business ( email )

1014 Greene St
Columbia, SC 29208
United States

HOME PAGE: http://www.astarkweather.com

Joshua T. White

Vanderbilt University - Finance Department ( email )

United States

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