Executive Pay Transparency and Relative Performance Evaluation: Evidence from the 2006 Pay Disclosure Reforms

98 Pages Posted: 15 Jan 2020 Last revised: 19 Dec 2020

See all articles by Jung Ho Choi

Jung Ho Choi

Stanford University Graduate School of Business

Brandon Gipper

Stanford University Graduate School of Business

Shawn Shi

Stanford Graduate School of Business

Date Written: December 18, 2020

Abstract

Early empirical evidence shows a surprising lack of relative performance evaluation (RPE) for executive pay, giving rise to many potential explanations. We predict and find that executive pay transparency can reduce frictions associated with shareholder monitoring of executive pay that reduce RPE. In particular, we examine RPE over the two decades centered on the 2006 pay disclosure reforms. Firms which increase disclosures are the firms that lack implicit RPE before and implement RPE after the reforms. To further connect pay transparency, shareholder oversight, and RPE, we show increased access to pay disclosures on the SEC EDGAR website after the reforms and that this access positively relates to changes in RPE use. Next, specific disclosures in the 2006 mandate are also related to changes in RPE use, including peer and performance metric disclosures. Lastly, say-on-pay voting is consistent with shareholders expressing support for RPE.

Keywords: Corporate Governance, Executive Pay, Regulation, Relative Performance Evaluation

JEL Classification: G38, J33, J38, M12, M41

Suggested Citation

Choi, Jung Ho and Gipper, Brandon and Shi, Shawn, Executive Pay Transparency and Relative Performance Evaluation: Evidence from the 2006 Pay Disclosure Reforms (December 18, 2020). Stanford University Graduate School of Business Research Paper No. 3509307, Available at SSRN: https://ssrn.com/abstract=3509307 or http://dx.doi.org/10.2139/ssrn.3509307

Jung Ho Choi

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650)721-8434 (Phone)

Brandon Gipper (Contact Author)

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
(650)498-4350 (Phone)

Shawn Shi

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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