Strategic Pay Ratio Estimation under Social Pressure

58 Pages Posted: 5 Feb 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: January 20, 2021

Abstract

We examine firm decisions under social pressure by focusing on firms’ discretionary choices in estimating the CEO pay ratio. Reported pay ratios are significantly lower when firms use complex methods to identify the median employee, whose total pay is the denominator in the ratio. Firms choose more complex methods when their headquarter states have more prosocial attitudes toward income inequality, greater union coverage, and have proposed pay-ratio surtaxes. Our results suggest that a prosocial culture toward income inequality influences real firm decisions, and some firms strategically estimate pay ratios that better align with social norms without making changes to pay.

Keywords: Pay Ratio Disclosure, Prosocial Culture, Income Inequality, Strategic Disclosure, Disclosure Discretionary Choices

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

Suggested Citation

Alam, Zinat S. and Ghosh, Chinmoy and Ryan, Harley E. and Wang, Lingling, Strategic Pay Ratio Estimation under Social Pressure (January 20, 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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