The CEO-Employee Pay Ratio

• In Event: Executive Compensation and Financial Reporting

Abstract

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. We document a significant convex (concave) relation between the pay ratio and future firm risk (operating performance). These results are robust to controlling for the endogenous nature of the pay ratio. 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.

Authors

• Steven Crawford, University of Houston

• Karen K Nelson, Rice University

• Brian Rountree, Rice University