Reading between the lines of the compensation report: does excessive CEO pay matter?

Kevin N'guessan; Salma Ibrahim; Mahmoud Elmarzouky; Jinsha Zhao

Reading between the lines of the compensation report: does excessive CEO pay matter?

Kevin N'guessan, Salma Ibrahim (Contributor), Mahmoud Elmarzouky (Contributor), Jinsha Zhao (Contributor)

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Abstract

This paper examines the relationship between the readability of the compensation report and the chief executive officer's (CEO) excessive compensation. Two competing hypotheses are presented. The first is based on the opportunistic view that managers with excessive pay obfuscate executive compensation disclosures. The second is based on legitimacy theory, whereby managers with excessive pay prefer to explain the pay through a more readable compensation report. Based on a sample of UK FTSE 350 firms between 2011 and 2019, we find that the compensation report in cases of excessive CEO pay is more readable in line with the legitimacy theory. The results are driven by CEOs that are overpaid rather than underpaid. We run various robustness tests and found similar results. The findings have implications for regulators and investors who seek to understand the role of compensation in disclosure decisions

Original language	English
Publication status	Published - 25 May 2023
Event	45th European Accounting Association Annual Congress - Helsinki / Espoo, Finland Duration: 24 May 2023 → 26 May 2023

Conference

Conference	45th European Accounting Association Annual Congress
Period	24/05/23 → 26/05/23

Bibliographical note

Organising Body: European Accounting Association

Keywords

Accounting and finance

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NGuessan-K-A-54257-AAMAccepted author manuscript, 365 KBLicence: Unspecified

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title = "Reading between the lines of the compensation report: does excessive CEO pay matter?",

abstract = "This paper examines the relationship between the readability of the compensation report and the chief executive officer's (CEO) excessive compensation. Two competing hypotheses are presented. The first is based on the opportunistic view that managers with excessive pay obfuscate executive compensation disclosures. The second is based on legitimacy theory, whereby managers with excessive pay prefer to explain the pay through a more readable compensation report. Based on a sample of UK FTSE 350 firms between 2011 and 2019, we find that the compensation report in cases of excessive CEO pay is more readable in line with the legitimacy theory. The results are driven by CEOs that are overpaid rather than underpaid. We run various robustness tests and found similar results. The findings have implications for regulators and investors who seek to understand the role of compensation in disclosure decisions",

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AB - This paper examines the relationship between the readability of the compensation report and the chief executive officer's (CEO) excessive compensation. Two competing hypotheses are presented. The first is based on the opportunistic view that managers with excessive pay obfuscate executive compensation disclosures. The second is based on legitimacy theory, whereby managers with excessive pay prefer to explain the pay through a more readable compensation report. Based on a sample of UK FTSE 350 firms between 2011 and 2019, we find that the compensation report in cases of excessive CEO pay is more readable in line with the legitimacy theory. The results are driven by CEOs that are overpaid rather than underpaid. We run various robustness tests and found similar results. The findings have implications for regulators and investors who seek to understand the role of compensation in disclosure decisions

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ER -

Reading between the lines of the compensation report: does excessive CEO pay matter?

Abstract

Conference

Bibliographical note

Keywords

Access to Document

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Cite this