It Goes Without Saying: the Role of Employee Relations in Pay Ratio Disclosure

This study examines the factors influencing firms’ disclosure behavior in response to the mandated CEO pay ratio disclosure, effective from January 1, 2017. Specifically, we investigate the association between a firm’s performance in employee relations and its approach to disclosing pay ratios. The results suggest that firms with superior employee relations exercise less discretion when calculating and reporting pay ratios. Additionally, these firms are less likely to provide lengthy discussions or utilize spin language to justify their compensation practices. For firms providing supplementary pay ratios, we find that those with stronger employee relations make fewer downward adjustments. Overall, our results suggest that firms valuing employee relations are less likely to engage in opportunistic reporting when disclosing pay ratio information. This study has implications for the importance and informativeness of disclosures related to environmental, social, and corporate governance (ESG), as well as the increasing demand for transparency in human capital practices. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M14; M41.