Median Employee Pay Disclosures and Changes in Employee Pay Satisfaction

51 Pages Posted: 2 May 2023 Last revised: 11 Apr 2024

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting; European Corporate Governance Institute (ECGI)

Lisa LaViers

A.B. Freeman School of Business at Tulane

Jason Sandvik

Eller College of Management, University of Arizona

Da Xu

Tsinghua University, School of Economics and Management

Date Written: April 7, 2024

Abstract

We study whether employee pay satisfaction changed after firms first disclosed the median employee pay level within the firm. Theory predicts an individual’s pay satisfaction is determined by comparing their actual pay to a reference wage, which is calculated using all the pay information that the individual possesses. If a firm’s disclosure of median employee pay changes the individual’s information set, it may cause their reference wage to decrease (or increase). As a result, the individual will be relatively more (or less) satisfied with their own pay. Consistent with the former, we find that employee pay satisfaction increased after median employee pay information was first disclosed in firms’ initial CEO pay ratio disclosures. Supporting the recalculation of reference wages as the mechanism, we find that the effects on pay satisfaction are greatest among employees who had relatively less pay information available to them through other sources prior to the disclosures.

Keywords: CEO Pay Ratio, Pay Fairness, Pay Transparency, Human Capital, Disclosure Policy, Employee Satisfaction

Suggested Citation

Carter, Mary Ellen and LaViers, Lisa and Sandvik, Jason and Xu, Da, Median Employee Pay Disclosures and Changes in Employee Pay Satisfaction (April 7, 2024). Available at SSRN: https://ssrn.com/abstract=4430286 or http://dx.doi.org/10.2139/ssrn.4430286

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Lisa LaViers

A.B. Freeman School of Business at Tulane ( email )

7 McAlister Dr.
New Orleans, LA 70118
United States
8656172944 (Phone)

Jason Sandvik (Contact Author)

Eller College of Management, University of Arizona ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Da Xu

Tsinghua University, School of Economics and Management ( email )

Haidian District, Beijing, China
Beijing, Beijing 100084
China

HOME PAGE: http://www.da-xu.com/

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