CEO Pay Ratio Estimation under Social Pressure

62 Pages Posted: 5 Feb 2021 Last revised: 26 Oct 2021

See all articles by Zinat S. Alam

Zinat S. Alam

University of North Texas, College of Business Administration, Department of Finance, Insurance Real Estate and Law

Chinmoy Ghosh

University of Connecticut - Department of Finance

Harley E. Ryan

Georgia State University - Department of Finance

Lingling Wang

University of Connecticut - Department of Finance

Date Written: October 25, 2021

Abstract

We show that firms report lower CEO-employee pay ratios when they use complex methods to identify the median employee, whose total pay is the denominator in the ratio. Firms choose complex methods when their headquarter states have stronger prosocial attitudes toward income equality and when CEO compensation is higher. Neither industry nor compensation design differences explain this choice. We find no evidence that firms make pay changes to reduce the pay differential between CEOs and general employees. Together, our results suggest that some firms strategically estimate pay ratios in response to social pressure, which alters the efficacy of compensation disclosure.

Keywords: CEO Pay ratio; Prosocial environment; Discretionary disclosure choices; Income inequality; Strategic disclosure

JEL Classification: G38, D63, D78, M12, M14

Suggested Citation

Alam, Zinat S. and Ghosh, Chinmoy and Ryan, Harley E. and Wang, Lingling, CEO Pay Ratio Estimation under Social Pressure (October 25, 2021). Available at SSRN: https://ssrn.com/abstract=3771515 or http://dx.doi.org/10.2139/ssrn.3771515

Zinat S. Alam

University of North Texas, College of Business Administration, Department of Finance, Insurance Real Estate and Law ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

Harley E. Ryan

Georgia State University - Department of Finance ( email )

University Plaza
35 Broad Street, Suite 1221
Atlanta, GA 30303-3083
United States
404-651-2674 (Phone)
404-651-2630 (Fax)

Lingling Wang (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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