The awkward truth about CEO pay

ABSTRACT

This paper is the first of its kind using the variation in state corporate tax rates to investigate if they have any explanatory power in predicting variations in CEO pay. Specifically, this paper allows us to shed light on whether corporate tax cuts boost CEO pay? This paper, by using a difference-in-difference (DID) set up over the period 1994 to 2015, finds that corporate tax cuts statistically affect CEO pay among all publicly traded firms in the US. The magnitude of the effect increases among the S&P 500 and S&P 100. The paper further presents some interesting findings using three different measures of executive compensation.

KEYWORDS:

• Corporate tax
• CEO pay
• executive compensation
• difference-in-difference

JEL CLASSIFICATION:

• H71
• H26
• H25
• H20

Acknowledgments

I would like to thank Jeremy Groves, Maria Ponomareva and Asad Abbasi for their valuable comments at different stages. Lastly, I would also like to thank Sandip Sureka for helping me get access to the compustat execucomp database.

Disclosure statement

No potential conflict of interest was reported by the author.