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Does Disclosure affect CEO Pay Setting? Evidence from the Passage of the 1934 Securities and Exchange Act

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  • Alexandre Mas

    (Princeton University)

Abstract

Using newly digitized data from the Federal Trade Commission, I examine the evolution of executive compensation during the Great Depression, before and after mandated pay disclosure in 1934. I find that disclosure did not achieve the intended effect of broadly lowering CEO compensation. If anything, and in spite of popular outrage against compensation practices, average CEO compensation increased following disclosure relative to the upper quantiles of the non-CEO labor income distribution. Pay disclosure coincided with compression of the CEO earnings distribution. Following disclosure there was a pronounced drop in the residual variance of earnings—computed with size and industry controls—that accounts for almost the entire drop in the unconditional variance. The evidence suggests an upward "ratcheting" effect whereby lower paid CEOs given the size and industry of their firm experienced relative gains while well paid CEOs conditional on these characteristics were not penalized. The exception is at the extreme right tail of the CEO distribution, which fell precipitously, suggesting that disclosure may only have restrained only the most salient and visible wages.

Suggested Citation

  • Alexandre Mas, 2016. "Does Disclosure affect CEO Pay Setting? Evidence from the Passage of the 1934 Securities and Exchange Act," Working Papers 2016-5, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2016-5
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    Cited by:

    1. Potters, Jan & Xu, Yilong, 2020. "Social information and selfishness," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 327-340.
    2. Carosi, Andrea & Guedes, José, 2024. "Can compensation disclosure cause CEO pay escalation?," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    3. Morten Bennedsen & Elena Simintzi & Margarita Tsoutsoura & Daniel Wolfenzon, 2022. "Do Firms Respond to Gender Pay Gap Transparency?," Journal of Finance, American Finance Association, vol. 77(4), pages 2051-2091, August.
    4. Erika Deserranno & Gianmarco Le n-Ciliotta & Firman Witoelar, 2021. "When transparency fails: Financial incentives for local banking agents in Indonesia," Departmental Working Papers 2021-04, The Australian National University, Arndt-Corden Department of Economics.
    5. Blundell, Jack, 2021. "Wage responses to gender pay gap reporting requirements," LSE Research Online Documents on Economics 114416, London School of Economics and Political Science, LSE Library.
    6. Carina Neisser & Nils Wehrhöfer, 2025. "Unintended Effects of Transparency: The Consequences of Income Disclosure by Politicians," ECONtribute Discussion Papers Series 354, University of Bonn and University of Cologne, Germany.
    7. Vincent Tena, 2023. "The Consequences of Regulating Agency Friction on an Optimal Contract," Post-Print hal-04722609, HAL.

    More about this item

    Keywords

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    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-

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