Title: What does the CEO pay ratio capture? Evidence from Denmark
Coauthored with Lisa Goh (The Hang Seng University of Hong Kong) and Kim Pettersson (Copenhagen Business School
Abstract: Some regulators require that publicly listed firms contextualize Chief Executive Officer (CEO) pay relative to other employees in the firm. We investigate the CEO pay ratio as mandated by the U.S. Securities and Exchange Commission (SEC) and compare it with other common measures of income dispersion from economics and statistics. We use Danish government data on the pay of CEOs and employees to calculate annual pay dispersion measures for public and private companies in Denmark. We document the association between CEO pay ratios and other common measures of dispersion even though these firms were not required to publicly disclose CEO pay ratios. We examine effects of assumptions and exclusions in the pay ratio calculation, and estimate that the SEC de minimis exemption permitting exclusion of up to 5% of employees can reduce the reported CEO pay ratio by up to 12%. Reported CEO pay ratios are also sensitive to different assumptions about the population of employees. We document the degree of predictability of CEO pay ratios over time. We provide evidence of pay dispersion in private firms relative to listed firms. Finally, we show that pay dispersion varies with the gender of the CEO and employees.
