SEC Compensation-related Comment Letters and Excess CEO Compensation

European Accounting Review, forthcoming

61 Pages Posted: 28 Mar 2022

See all articles by WEIXIAO WANG

WEIXIAO WANG

Australian National University (ANU)

Lijuan Zhang

Australian National University

Mark David Wilson

Australian National University

Tejshree Kala

Australian National University (ANU)

Date Written: February 17, 2022

Abstract

We examine the impact of compensation-related comment letters (hereafter CCLs) issued by the U.S. Securities and Exchange Commission (the SEC) on excess chief executive officers’ (CEO) compensation. We find that changes in compensation in the two-year window surrounding the release of CCLs are negatively associated with the number of disclosure defects identified in CCLs, and that this association is driven by defects that relate directly to pay or the method by which it was determined, rather than broader governance- or readability-related defects. Cross-sectional analyses suggest that the negative impact of a CCL on excess CEO compensation is concentrated in firms with overpaid CEOs and less powerful CEOs. We further show that total disclosure defects, pay-related defects and governance-related defects are positively associated with the likelihood that the subject firm experiences low shareholder support in subsequent ‘say-on-pay’ votes, suggesting that enhanced visibility of excess pay and resulting shareholder activism may be one channel through which pressure is brought to bear on firms to reduce excess compensation.

Keywords: SEC Comment Letter, Executive Compensation, Excess Compensation, Corporate Governance, Corporate Disclosure.

JEL Classification: M12, M41, M48

Suggested Citation

WANG, WEIXIAO and Zhang, Lijuan and Wilson, Mark D. and Kala, Tejshree, SEC Compensation-related Comment Letters and Excess CEO Compensation (February 17, 2022). European Accounting Review, forthcoming, Available at SSRN: https://ssrn.com/abstract=4037743

WEIXIAO WANG (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Lijuan Zhang

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

Mark D. Wilson

Australian National University ( email )

Canberra, ACT 2601
Australia

Tejshree Kala

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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