Voluntary Performance Disclosures in the CD&A

58 Pages Posted: 18 Feb 2021

See all articles by Heidi Packard

Heidi Packard

University of Michigan at Ann Arbor - Accounting

Andrea Pawliczek

University of Missouri at Columbia - School of Accountancy

A. Nicole Skinner

University of Georgia - J.M. Tull School of Accounting

Date Written: February 1, 2021

Abstract

This paper examines how firms use voluntary disclosures in response to information asymmetries between firms and shareholders surrounding the design and approval of executive compensation. Prior research finds that firm performance is a primary determinant of pay and negative shareholder response to pay is largely influenced by recent performance. We find evidence that firms voluntarily increase discussion of their performance in the Compensation Discussion and Analysis (CD&A) section of the annual proxy statement when shareholder scrutiny is high, i.e., when compensation levels are high relative to peers and performance. This relation strengthens after Say-on-Pay, when shareholder scrutiny arguably increased for all firms. These voluntary performance disclosures are associated with higher shareholder approval and more positive proxy advisor recommendations, as well as higher relative compensation in the subsequent year. Altogether, our findings suggest CD&A performance disclosures allow firms to communicate the context of their compensation choices in order to mitigate negative shareholder scrutiny.

Keywords: Proxy statement disclosure, CD&A disclosure, shareholder scrutiny, voluntary disclosure

JEL Classification: D22, J33, M41

Suggested Citation

Packard, Heidi and Pawliczek, Andrea and Skinner, Ashley Nicole, Voluntary Performance Disclosures in the CD&A (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3776925 or http://dx.doi.org/10.2139/ssrn.3776925

Heidi Packard (Contact Author)

University of Michigan at Ann Arbor - Accounting ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

Andrea Pawliczek

University of Missouri at Columbia - School of Accountancy ( email )

420 Cornell Hall
Columbia, MO 65211
United States

Ashley Nicole Skinner

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

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