No. 183: CEO Pay Ratio Disclosure and Employee Restructuring

This study examines how firms respond to CEO pay ratio transparency regulations by engaging in employee restructuring. Using a unique pay ratio disclosure setting in France, where firms calculate pay ratios at the headquarters level, we analyze whether companies strategically engage in employee restructuring to reduce the disclosed pay ratio. Our difference-indifferences design compares affected French firms with a control group of German firms, leveraging granular firm data from 2014 to 2021. We find that some French firms increase employee average compensation at the headquarters level by relocating higher-paid employees into the scope of the calculation, effectively lowering the pay ratio without reducing CEO pay. Our results are robust across various specifications and contribute to the understanding of corporate responses to transparency mandates.