CEO Compensation and Disclosure Policy

This paper examines the relationship between CEO compensation and disclosure policy related to corporate governance information within S&P 500 index. Our sample consists of 456 companies for the period from 2005 to 2015. Most previous researchers mainly put their attention on various corporate governance characteristics such as board size, board independence, and executive ownership when analysing CEO compensation. Our paper extends the previous study by dividing corporate governance into two aspects: governance transparency and governance characteristics. We find a significant relationship between CEO total compensation and governance transparency. In addition, a significant positive relationship exists between CEO salary and governance transparency with year and industry fixed effect. The higher transparency, the less option compensation the CEO receives. As for governance characteristic measure, we choose CEO ownership and board independence as independent variables. We find that more CEO ownership leads to less total compensation, salary, and more option awards. However, no significant evidence shows the impact of board independence. The results show that governance with higher transparency can serve as an alternative mechanism for pay-for-performance. When governance transparency is relatively high, the board is able to monitor the CEO better and hence is able to tilt the compensation towards fixed-salary and less pay-for-performance.