Corporate stakeholders and CEO-worker pay gap: evidence from CEO pay ratio disclosure

Based on the recent SEC-mandated disclosures of CEO-worker pay ratios, we find that firms significantly decrease (increase) their CEO-worker pay ratios when their prior pay ratios are high (low) relative to peers. More importantly, the decrease in pay ratio among high pay ratio firms is significantly more pronounced with stronger stakeholder influences, proxied by employees with greater bargaining power, communities with higher social capital, and states with more stringent minimum wage legislation. These results are robust to controlling for CEO and median worker pay benchmarking as well as the influences of shareholders. Using state-level pay ratio tax proposals as another proxy for stakeholder influence, we find high pay ratio firms in states with these proposals reduce pay ratios significantly more than firms with similar high pay ratios in other states. Overall, our results highlight the influence of corporate stakeholders in mitigating high CEO-worker pay gap.