CEO Pay Ratio Voluntary Disclosures and Stakeholder Reactions
Review of Accounting Studies
54 Pages Posted: 25 Jun 2020 Last revised: 11 Aug 2022
Date Written: August 10, 2022
Since 2018 the Security and Exchange Commission has required firms to disclose the ratio of their chief executive officer's and median employee’s pay. This rule was enacted to address increasing concerns from investors about the human capital management practices of firms. Due to the uncertainty surrounding the ratio's interpretation, some managers provide voluntary disclosures to complement and clarify their mandatory disclosures. We document this behavior by manually inspecting the proxy statements of all firms in the S&P 1500. We predict and find that a firm's propensity to provide voluntary disclosures increases in the magnitude of its pay ratio. This relation is only present, however, when voluntary disclosures contain firm-specific information, as opposed to boilerplate information that is similar across firms. In line with these findings, we show that investors react differently to firm-specific disclosures than to boilerplate disclosures, especially when firms have relatively large CEO pay ratios. We also show that voluntary disclosure provision impacts compensation-related media coverage.
Keywords: CEO Pay Ratio, Pay Fairness, Voluntary Disclosure, Executive Compensation
JEL Classification: G14, G23, G41, J31, M41, M48, M52
Suggested Citation: Suggested Citation