The CEO-Employee Pay Ratio

Steve Crawford, Karen K. Nelson, Brian Rountree
2014 Social Science Research Network  
We examine the ratio of CEO to employee pay (the pay ratio) for a broad sample of U.S. commercial banks. For the vast majority of the sample, pay ratios are substantially lower than the levels popularized in the financial press. Pay ratios are increasing in firm size, performance and leverage, and decreasing in firm risk. We document a significant convex (concave) relation between the pay ratio and future firm risk (operating performance), but the economic magnitude of these effects is
more » ... effects is relatively small. The results also reveal a nonlinear relation between pay ratios and shareholder votes on "say on pay" proposals such that dissent is higher in the tails of the pay ratio distribution. All results are robust to controlling for CEO pay, indicating that required disclosures of executive compensation are not a substitute for pay ratios.
doi:10.2139/ssrn.2529112 fatcat:5z556kpqovbr5ima26tunry7fq