Rethinking Measurement of Pay Disparity and Its Relation to Firm Performance

Rouen, Ethan

doi:10.2308/accr-52440

Cited by 119 publications

(50 citation statements)

References 64 publications

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“…Table 4 shows descriptive statistics and Table 5 shows results of the regression analysis. Our findings are in line with the evidence presented by Rouen (2020). Future company performance is not significantly associated with the overall pay ratio (column 1).…”

Section: The Level and Development Of Vertical Pay Inequalitysupporting

confidence: 91%

“…4.5, we analyze the development of vertical pay inequality by comparing CEO and mean employee compensation. In this respect, we replicate a recent study by Rouen (2020) who finds that pay inequality that can be explained by economic factors is positively correlated with future company performance while pay inequality that cannot be explained is negatively correlated with future company performance.…”

Section: Theories and Current Questions On Executive Compensationsupporting

confidence: 77%

“…Some studies find a positive relationship between pay ratios and companies' performance (Faleye et al 2013;Banker et al 2016;Cheng et al 2017) while others find a negative relationship (Shin et al 2015). Rouen (2020) suggests that only inequality that cannot be explained by economic factors-such as the size of the company-deprives employees and harms companies' performance. He shows that future company performance is negatively related to pay inequality not traceable to economic factors known to influence CEO compensation or other employees' compensation.…”

Section: The Level and Development Of Vertical Pay Inequalitymentioning

confidence: 99%

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Executive compensation in Germany

2020

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Understanding executive compensation and its effects helps design better organizations. Research on this area is thus of paramount importance. For large US companies, the ExecuComp database offers access to standardized and comprehensive executive compensation data. Hence, research on executive compensation has strongly focused on US companies. It is not clear that research results based on US data apply to other countries due to differences in corporate governance and culture. We have built up a database that is similar to ExecuComp for Germany, which is by far the largest economy in Europe. This database includes companies from the two largest German stock indices DAX and MDAX. We make these data available for academic research. We describe the data and we provide important results to outline the opportunities that our database offers. We find that only some of the empirical results for US companies such as the association between company size and pay level generalize to German companies while others such as compensation structure and the vertical pay inequality provide opportunities for further investigation.

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Section: The Level and Development Of Vertical Pay Inequalitysupporting

confidence: 91%

Section: Theories and Current Questions On Executive Compensationsupporting

confidence: 77%

Section: The Level and Development Of Vertical Pay Inequalitymentioning

confidence: 99%

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Executive compensation in Germany

2020

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“…2 This is distinctly different from vertical pay dispersion, dispersion in pay among employees of different levels of the firm. While recent studies examine the effects of vertical pay dispersion on firm performance (e.g.,Park & Kim, 2017;Rouen, 2019), we examine how horizontal pay dispersion impacts individual performance. This is an important distinction as horizontal pay dispersion allows for more direct comparison of performance and pay as employees are in the same level of the firm performing the same job.…”

mentioning

confidence: 99%

The effect of horizontal pay dispersion on the effectiveness of performance-based incentives

Grabner

Martin

2021

Accounting, Organizations and Society

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“…Recent archival accounting research examines the potential impact of these disclosures on firm performance (e.g., Crawford et al ; Faleye et al ; Rouen ).…”

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confidence: 99%

Vertical Pay Dispersion, Peer Observability, and Misreporting in a Participative Budgeting Setting

Guo

Libby

Liu

et al. 2019

Contemporary Accting Res

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In this study, we examine the joint effect of vertical pay dispersion and peer observability on subordinates' misreporting choices. We adopt a participative budgeting setting in which two subordinates report to one superior, and we manipulate vertical pay dispersion (low/high) and peer observability (absent/present). Subordinates have private information about actual project costs and can over‐report project costs to the superior without detection and thus create budgetary slack. When a peer's reporting choices are observable, we predict and find that peer reporting choices have an asymmetric influence on the focal subordinates' reporting choices, and this asymmetric influence depends on the level of vertical pay dispersion. Specifically, we find that when vertical pay dispersion is low, subordinates who observe peer reports containing low slack misreport less, whereas observing peer reports that contain high slack has no significant effect. However, when vertical pay dispersion is high, subordinates who observe peer reports containing high slack misreport more, whereas observing peer reports that contain low slack has no significant effect. Driven by these asymmetric effects, subordinates misreport less in the presence of peer observability than in its absence when vertical pay dispersion is low and misreport more in the presence of peer observability than in its absence when vertical pay dispersion is high. Overall, our findings suggest that when a firm has a more egalitarian pay structure (i.e., low vertical pay dispersion), an open information policy is conducive to a more honest reporting environment, whereas under a more hierarchical pay structure (i.e., high vertical pay dispersion), open information policies can compromise the honesty of subordinates' reports.

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Rethinking Measurement of Pay Disparity and Its Relation to Firm Performance

Cited by 119 publications

References 64 publications

Executive compensation in Germany

Executive compensation in Germany

The effect of horizontal pay dispersion on the effectiveness of performance-based incentives

Vertical Pay Dispersion, Peer Observability, and Misreporting in a Participative Budgeting Setting

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