Spinning the CEO Pay Ratio Disclosure

We examine the real effects of disclosing information about the pay gap between the CEO and employees. Firms reporting higher pay ratios tend to include discretionary narrative portraying their employee relations or compensation practices in a positive light. Reporting higher ratios is associated with negative changes in the tone of media coverage, shareholder voting on executive compensation, and employee productivity and morale. Spinning the pay ratio disclosure fails to attenuate these negative outcomes. Our findings suggest that the disclosure of the ratio, rather than vertical pay disparity alone, explains the negative stakeholder response.