Discretion in pay ratio estimation

IF 3.6 2区经济学 Q1 BUSINESS, FINANCE

Journal of Banking & Finance Pub Date : 2025-02-18 DOI:10.1016/j.jbankfin.2025.107416

Zinat Alam , Chinmoy Ghosh , Harley E. Ryan Jr. , Lingling Wang

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Abstract

We examine how firms estimate CEO-employee pay ratios in response to the CEO pay ratio rule, the first mandated pay inequality disclosure for U.S. firms. Our findings reveal that firms disclose lower pay ratios when they use more complex methods to identify the median employee. The relation between the estimation method and the disclosed pay ratio is stronger for firms headquartered in states with a greater societal aversion to income inequality and is weaker when CEO pay in the prior year is lower. Firms’ estimation choices do not merely represent selection bias or potentially omitted variables such as firm size, industry, compensation design complexity, or workforce composition – including the presence of foreign, temporary, seasonal, or highly paid employees. Although firms that use more complex methods to identify the median employee disclose lower pay ratios, we find no evidence of real changes in pay inequality among these firms. Our results suggest that some firms use estimation discretion to appear to conform to stakeholders’ preferences instead of taking real actions. These practices call into question the informativeness of CEO pay ratio disclosures, highlighting a potential cost of granting discretion in mandatory ESG disclosures.

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薪酬比率估算的自由裁量权

我们研究了公司如何根据CEO薪酬比率规则估计CEO-员工薪酬比率，这是美国公司首次强制披露薪酬不平等。我们的研究结果表明，当公司使用更复杂的方法来确定员工的中位数时，他们披露的薪酬比率会更低。对于总部位于社会对收入不平等厌恶程度较高的州的公司，估计方法与披露的薪酬比率之间的关系更强，而当CEO上一年的薪酬较低时，这种关系较弱。公司的估计选择不只是代表选择偏差或潜在遗漏的变量，如公司规模、行业、薪酬设计复杂性或劳动力构成——包括外国、临时、季节性或高薪员工的存在。尽管使用更复杂的方法来确定员工中位数的公司披露了较低的薪酬比率，但我们没有发现这些公司之间薪酬不平等发生实际变化的证据。我们的研究结果表明，一些公司使用估计自由裁量权来显示符合利益相关者的偏好，而不是采取实际行动。这些做法令人质疑CEO薪酬比率披露的信息量，凸显了在强制性ESG披露中给予自由裁量权的潜在成本。

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来源期刊

Journal of Banking & Finance Multiple-

CiteScore

6.40

自引率

5.40%

发文量

262

期刊介绍： The Journal of Banking and Finance (JBF) publishes theoretical and empirical research papers spanning all the major research fields in finance and banking. The aim of the Journal of Banking and Finance is to provide an outlet for the increasing flow of scholarly research concerning financial institutions and the money and capital markets within which they function. The Journal''s emphasis is on theoretical developments and their implementation, empirical, applied, and policy-oriented research in banking and other domestic and international financial institutions and markets. The Journal''s purpose is to improve communications between, and within, the academic and other research communities and policymakers and operational decision makers at financial institutions - private and public, national and international, and their regulators. The Journal is one of the largest Finance journals, with approximately 1500 new submissions per year, mainly in the following areas: Asset Management; Asset Pricing; Banking (Efficiency, Regulation, Risk Management, Solvency); Behavioural Finance; Capital Structure; Corporate Finance; Corporate Governance; Derivative Pricing and Hedging; Distribution Forecasting with Financial Applications; Entrepreneurial Finance; Empirical Finance; Financial Economics; Financial Markets (Alternative, Bonds, Currency, Commodity, Derivatives, Equity, Energy, Real Estate); FinTech; Fund Management; General Equilibrium Models; High-Frequency Trading; Intermediation; International Finance; Hedge Funds; Investments; Liquidity; Market Efficiency; Market Microstructure; Mergers and Acquisitions; Networks; Performance Analysis; Political Risk; Portfolio Optimization; Regulation of Financial Markets and Institutions; Risk Management and Analysis; Systemic Risk; Term Structure Models; Venture Capital.