Spinning the CEO Pay Ratio Disclosure

56 Pages Posted: 11 Nov 2019 Last revised: 17 Dec 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

Date Written: December 15, 2021

Abstract

We examine the consequences of mandating disclosure about the pay gap between the CEO and the median employee. Reporting a high pay ratio is associated with adverse changes in employee morale and productivity, which is partially offset by prior CSR investments. Firms reporting an unexpectedly high ratio take actions to downward adjust the reported metric and tend to include discretionary narrative portraying their employee relations in a positive light (i.e., “spin”). We validate these responses using several identification strategies. Prior enforcement actions by labor regulators and better recent performance temper the tendency to spin a high ratio. We find no evidence that spin attenuates the negative employee response to a high ratio disclosure. In the second year, high ratio firms are more likely to lower their reported ratio by altering the selection of their median employee. Firms with large declines in the pay ratio reduce their spin.

Keywords: Pay ratio, human capital disclosure, mandatory disclosure, CSR, ESG, greenwashing

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 (December 15, 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 ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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