The Effect of Accessibility of Status-Confirming Information on Investor Reactions to the Pay-Ratio Disclosure

The SEC provides companies with considerable flexibility in the disclosure of the ratio between CEO and median employee compensation (pay-ratio). Prior research suggests that pay-ratio disclosures negatively affect investors’ support for executive compensation (SoP). Using two experiments, I find that accessibility of information that helps justify the gap between CEO and median employee compensation (status-confirming information) increases nonprofessional investors’ support for executive compensation (SoP support). Drawing on research in psychology, in experiment 1, I predict that accessibility of status-confirming information increases investors’ perceptions of meritocracy especially when the pay-ratio is higher than the peer companies which helps investors rationalize the compensation gap made salient by the pay-ratio. I find that investors’ perceptions of meritocracy positively influence their SoP support. However, accessibility of status-confirming information does not increase perceptions of meritocracy when pay-ratio is higher than peer companies. Additional analysis reveals that accessibility of status-confirming information does not significantly increase SoP support and perceptions of meritocracy in higher income participants’, suggesting that participants income levels could potentially affect their evaluation of the pay-ratio disclosure when status-confirming information is accessible. Since the analysis including income levels was conducted ex-post in Experiment 1, I conduct a second experiment to confirm my findings. In Experiment 2 I investigate whether participants’ perceptions of wealth impact their responses when the pay ratio is higher than peer companies. I find that investors’ perceptions of wealth and accessibility of status-confirming information affect both investors’ perceptions of meritocracy and SoP support when pay-ratio is higher than peer companies. Together, my findings provide evidence that the content of the pay-ratio disclosure apart from the disclosure itself could systematically affect investor decisions.

Level thesis:degree_level

Doctoral

Department dc:contributor.department

Business

Grantor dc:publisher

Georgia Institute of Technology

Year dc:date.issued

2022

Author dc:creator

• Menon, Anish

Advisors dc:contributor.advisor

• Rupar, Kathy
• Rupar-Wang, Kathy

Committee members dc:contributor.committeemember

• Thayer, Jane
• Venkataraman, Shankar
• Kuang, Jason (Xi)
• Moon, Robbie

• Pay-ratio
• Wealth
• Meritocracy

Language dc:language.iso

en_US

Handle dc:identifier.uri

https://hdl.handle.net/1853/72631

OAI identifier oai:identifier

oai:repository.gatech.edu:1853/72631