Assessing the Effects of Mandated Compensation Disclosures

This paper analyzes the effects of mandated, management compensation disclosures on compensation levels. For identification, I use the introduction of the Compensation Discussion and Analysis (CD&A) in 2006, a significant expansion in the required disclosures related to compensation. The design uses the timing of the introduction date to compare manager pay at firms with and without the disclosure in a difference-in-differences analysis. I find evidence that disclosures are associated with increasing compensation. Also, the CD&A is associated with increases in pay dispersion. I corroborate this evidence with the partial rollback of the CD&A allowed by the Jumpstart Our Business Startups Act in 2012, again finding that the CD&A is associated with higher compensation. From cross-sectional tests, this compensation increase appears to be concentrated among managers with shorter tenure, at smaller firms, and in industries with higher variation in pay. Entrenched and powerful managers (CEOs, CFOs, and executive directors) do not have incremental pay increases with disclosures.