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The saliency of the CEO pay ratio

Author

Listed:
  • Audra Boone
  • Austin Starkweather
  • Joshua T White

Abstract

The US Securities and Exchange Commission’s mandated CEO pay ratio is a simple, but salient, metric that could resonate with employees given it focuses on their compensation. Reporting a relatively or surprisingly high ratio reduces employee perceptions of their pay, views of the CEO, and hampers productivity growth. Employee pay satisfaction drops after disclosing a high ratio even if their wages were previously disclosed and when the pay ratio disclosure adds little new information. Disclosures by firms with a high ratio contain more discretionary language to explain the ratio or portray employee relations positively and are more likely to be covered by the media. However, neither information source substantially alters the employee response to a salient ratio. Our work illustrates that requiring firms to disclose a salient metric can have unintended consequences on employees and suggests caution in requiring firms to report simplified Environmental, Social, and Governance (ESG) metrics that are inherently multifaceted.

Suggested Citation

  • Audra Boone & Austin Starkweather & Joshua T White, 2024. "The saliency of the CEO pay ratio," Review of Finance, European Finance Association, vol. 28(3), pages 1059-1104.
    • Handle: RePEc:oup:revfin:v:28:y:2024:i:3:p:1059-1104.
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    File URL: http://hdl.handle.net/10.1093/rof/rfad039
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    Citations

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    Cited by:

    1. María L. Gallén & Carlos Peraita, 2024. "The Influence of Women on Boards on the Relationship between Executive and Employee Remuneration," IJFS, MDPI, vol. 12(3), pages 1-23, August.

    More about this item

    Keywords

    pay ratio; human-capital disclosure; salient information; employee pay; ESG;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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