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Mind the gap: CEO–employee pay ratios and shareholder say‐on‐pay votes

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  • Steven S. Crawford
  • Karen K. Nelson
  • Brian R. Rountree

Abstract

We examine the Securities and Exchange Commission's assertion in the pay ratio disclosure rule that the ratio of Chief Executive Officer to employee pay is useful to shareholders for say‐on‐pay (SOP) voting decisions. Using an estimated pay ratio for a broad panel of commercial banks from 2010 to 2017, we find that voting dissent on SOP proposals is significantly higher in the top pay ratio decile, particularly when institutional ownership is high. Results are robust to controlling for a number of other determinants of voting dissent, including proxy advisor recommendations and executive compensation. Additionally, inferences using the first year of disclosed pay ratios in 2017 for S&P 1500 firms are consistent. However, we do not find similar results in the other deciles of the pay ratio in either sample, calling into question whether a cost‐benefit analysis would support the disclosure requirement imposed by Dodd‐Frank and implemented by the SEC.

Suggested Citation

  • Steven S. Crawford & Karen K. Nelson & Brian R. Rountree, 2021. "Mind the gap: CEO–employee pay ratios and shareholder say‐on‐pay votes," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 308-337, January.
    • Handle: RePEc:bla:jbfnac:v:48:y:2021:i:1-2:p:308-337
    DOI: 10.1111/jbfa.12500
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    2. Ye, Miaomiao & Li, Mengzhe & Zeng, Qiannan, 2022. "Former CEO director and executive-employee pay gap," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    3. Paolo Candio, 2023. "On the role of cost-effectiveness in accounting," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2023(2 Suppl.), pages 215-225.
    4. Meera Behera & Vikram Nanda & Oded Palmon, 2022. "Disciplinary shocks: say-on-pay and the role of large shareholders," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1453-1499, November.
    5. Tristan B. Johnson, 2022. "The effects of the mandated disclosure of CEO-to-employee pay ratios on CEO pay," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(1), pages 67-92, March.

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