The paper examines the effect of the new reporting regulation that requires UK listed firms to report CEO compensation as a single figure. While the new regulation intends to curb CEO pay and enhance the pay-performance relationship, our results show that the new rule has not achieved the intended objectives. Our results are based on a hand-collected sample of FTSE 100 firms over the period of 2010-2016. The main findings are threefold: Firstly, we find that CEO total pay stays roughly the same before and after the new regulation. There is limited evidence that pay increases in firms that adopt the regulation early. Secondly, pay-performance actually declines after the new regulation. This effect is particularly evident in firms with weak corporate governance. Pay-performance drops almost 50% after the reform in firms with weak corporate governance. Thirdly, the new rule has no impact on pay gap, where the CEO-toemployee pay ratios are about the same before and after the regulation. Our results suggest that increasing the reporting transparency has limited impact on total pay and pay-performance.
|Published - 1 Nov 2018
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