Has Increased Disclosure Changed CEO Compensation Design?

Summary

The research by Atte Aaltonen (2026) employed a difference-in-differences design to examine the efficacy of the SEC's 2022 Pay-versus-Performance (PvP) disclosure rule on CEO compensation design in U.S. public companies. This rule mandates firms to report "Compensation Actually Paid" (CAP) along with shareholder returns, thereby supplementing existing grant-date disclosures. To isolate the rule's impact, the study compared 2,640 U.S. companies subject to the regulation against a control group of 287 Canadian companies not under the same mandate, analyzing data from 2019 to 2024. The methodology focused on three key metrics to detect changes in compensation design: the equity share of total compensation, the yearly concentration of equity grants, and the year-to-year volatility of total compensation. This comparative approach aimed to distinguish the specific effects of the disclosure rule from broader economic or market trends influencing executive pay. The study's findings indicate that the SEC's PvP disclosure rule had no statistically significant effect on any of the three examined compensation metrics. This suggests that while the rule increased transparency by requiring more detailed disclosures, it did not lead to substantive changes in how CEO compensation packages are structured. Both the U.S. and Canadian companies exhibited similar trends during the period under review, including a rise in the equity share of total compensation and a decrease in both grant concentration and the volatility of total compensation. These parallel movements in both regulated and unregulated firms imply that the observed shifts in compensation design are more likely driven by broader market forces and prevailing industry trends, rather than by the direct influence of the SEC's disclosure regulation. The results align with historical patterns where prior disclosure regulations have often shown limited impact on underlying compensation practices. The implications of this research suggest that merely increasing disclosure may not be sufficient to alter corporate behavior in CEO compensation design. While enhanced transparency benefits investors and stakeholders by providing more information, it does not appear to serve as a direct catalyst for changes in how executive pay is determined. For policymakers aiming to influence compensation structures, the findings suggest that regulatory tools beyond simple disclosure mandates might be necessary. Companies, therefore, primarily engage with the PvP rule for compliance and informational purposes, rather than it prompting a fundamental re-evaluation of their compensation strategies. The observed consistency in compensation trends across two different regulatory environments further underscores the pervasive influence of broader economic and market dynamics on executive remuneration practices.