CEO Pay Ratio Disclosures and Changes in Employee Pay Satisfaction

We study whether CEO pay ratio disclosures were informative to employees about their own pay by estimating the impact of the disclosures on employee pay satisfaction. Exploiting the staggered timing of the pay ratio disclosures, we find that employee pay satisfaction increased after their firms’ disclosures as measured by their ratings of their firms’ compensation and benefits on Glassdoor. We show that these findings are not driven by alternative information in proxy statements, general trends in employee satisfaction, ratings manipulation, or concurrent changes in employee pay levels. Instead, we posit that the new information in the disclosures about median worker pay levels caused employees to perceive their own pay levels more favorably. Consistent with this explanation, we find that the increases in pay satisfaction are greatest within firms that had relatively small median worker pay levels and those that had relatively opaque pay information environments before the disclosure. Overall, our findings reveal a positive externality of the Securities and Exchange Commission’s mandate on human capital disclosures, potentially informing future policy making. This paper was accepted by Jan Bouwens, accounting. Funding: The authors thank Boston College, Tsinghua University, Tulane University, the University of Arizona, the Carol Lavin Bernick Faculty Grant Program, and the National Natural Science Foundation of China [Grants 72402110, 72442014] for providing financial support for this project. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.08151 .