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Pay me a single figure! Assessing the impact of single figure regulation on CEO pay

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  • Ibrahim, Salma
  • Li, Hao
  • Yan, Yan
  • Zhao, Jinsha

Abstract

In this paper, we examine the relation between quantitative disclosure of CEO pay and the optimality of pay structure in terms of 1) level of pay, 2) pay-performance relationship, and 3) CEO-to-employee pay ratio. We use the new reporting regulation in 2013, requiring large and medium-sized companies and groups in the UK to report a single figure of total pay, as an exogenous shock to pay disclosure. Our results are based on a hand-collected sample of FTSE 100 firms over the period of 2010–2017. The main findings are threefold: Firstly, we find that CEO total pay stays roughly the same before and after the new regulation. In addition, firms that voluntarily adopt the regulation early have higher pay increases than their counterparts that do not adopt early in univariate tests. Secondly, pay-performance sensitivity actually declines after the new regulation by more than 50%. This effect is particularly evident in firms with weak corporate governance. Thirdly, the effect of the reform on the CEO-to-employee pay ratio is minimal, whereby it declined slightly following the reform, but this is only significant in univariate tests. Our results suggest that the 2013 regulation which increases the reporting transparency has limited impact on total pay and pay-performance in the UK.

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  • Ibrahim, Salma & Li, Hao & Yan, Yan & Zhao, Jinsha, 2021. "Pay me a single figure! Assessing the impact of single figure regulation on CEO pay," International Review of Financial Analysis, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finana:v:73:y:2021:i:c:s105752192030288x
    DOI: 10.1016/j.irfa.2020.101647
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    2. Zhao, Jinsha & Miao, Jia, 2023. "Is Bitcoin used to evade financial sanction?," Finance Research Letters, Elsevier, vol. 55(PB).
    3. Habiba Al-Shaer & Khaldoon Albitar & Jia Liu, 2023. "CEO power and CSR-linked compensation for corporate environmental responsibility: UK evidence," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1025-1063, April.
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    More about this item

    Keywords

    Executive compensation; Pay-performance; Regulation; CEO pay gap;
    All these keywords.

    JEL classification:

    • 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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