A long-awaited regulation from the Dodd-Frank Act of 2010 requires companies to disclose the ratio of the CEO’s compensation to the median pay of employees and could prove to be effective in restraining the growth of CEO pay, according to a new study.
Enforcement of Section 953(b) of the Dodd-Frank Act is scheduled to begin next January, and it may help discourage companies from excessive compensation for their top executives. The study appears in the spring issue of the Journal of Management Accounting Research, published by the American Accounting Association. A pair of researchers, Khim Kelly of the University of Waterloo and Jean Lin Seow of Singapore Management University, pointed to the failure of current regulations that seek to curb pay excesses by requiring companies to disclose executive-compensation levels and explain how they were arrived at. Adding CEO-to-employee pay ratios to the disclosure mix, the new research suggests, is likely to be significantly more effective than the current requirements.
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