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We examine factors influencing firms' strategic disclosure of executive pay in Korea. In Korea, executive pay is disclosed through directors' pay disclosure in a firm's annual report. Because the disclosure rules in Korea do not mandate but only recommend that firms distinguish between inside executive directors and outside nonexecutive directors when reporting the average pay of directors, this regulatory policy provides a unique opportunity to examine managers' incentives to opportunistically manage the disclosed levels of average executive pay. We find that strategic disclosure for cloaking executive pay prevails when firms have weak corporate governance and high (low) political costs of disclosing high levels of executive pay (making strategic disclosures), but that such disclosure is not associated with proprietary costs. Furthermore, using the subsample of firms that can choose between different types of strategic disclosures, we examine whether firms base their choice on the political costs of making the strategic disclosures. In our data setting, there are two major ways of strategically managing the disclosed average executive pay downward: (1) deliberate aggregation of inside and outside director pay in the calculation of average director pay, and (2) inclusion of part-time inside directors who receive a minimal or substantially low level of pay (which, of the two schemes, is the less visible). Our results suggest that the higher the political costs of a firm's strategic disclosures are, the less visible the firm's cloaking of executive pay will be. Data Availability: Data are available from public sources identified in the text.

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