Pay for Performance? CEO Compensation Alignment Post-SEC Rule Change

Authors:

Aiyesha Dey, Harvard Business School

Berk Sensoy, Vanderbilt University

Austin Starkweather, University of South Carolina

Joshua T. White, Vanderbilt University

Abstract:

We analyze the impact of the SEC’s new Pay Versus Performance rules on executive compensation disclosure and the market response. We find that the newly disclosed compensation actually paid metric is robustly related to shareholder returns, suggesting intentional alignment of management and shareholder interests. The new disclosures provide investors with novel information about the alignment of CEO compensation with firm performance. Investors respond positively when manager compensation actually paid falls after poor stock performance. They also show increased voting support when compensation actually paid suggests managerial incentives are aligned with shareholder returns. Our findings have implications for regulatory impact and firm strategies in executive pay design and disclosure.