Employee Responses to Increased Pay Transparency: An Examination of Glassdoor Ratings and the CEO Pay Ratio Disclosure

Pay transparency and the pay dispersion it reveals are of great interest across disciplines. In this paper, we study how the increased transparency brought on by the United States’ CEO pay ratio disclosure rule affected employee pay satisfaction. Following recent analytical models of employee utility, we predict that employees’ reference wages decrease after the disclosures causing their own pay to appear more favorable and, as a result, their pay satisfaction to increase. Using a staggered difference-in-differences design, we find that pay satisfaction does increase in response to the disclosures. When the CEO pay ratio is decomposed, the increased satisfaction is driven by the new information in the disclosure, the median employee pay, not by the previously disclosed CEO pay information. In addition, there is a stronger positive effect on pay satisfaction for employees who had less pay information available to them through other sources prior to the disclosures