Saturday, May 15, 2021
Ilona Babenko (Arizona State), Benjamin Bennett (Tulane), and Rik Sen (University of New South Wales) have posted Regulating CEO Pay: Evidence from the Nonprofit Revitalization Act. Here is the abstract:
Using compensation data for 14,765 nonprofit organizations during 2009-2017, we find that CEO pay dropped by 2-3% when new legislation adopted in New York reduced the ability of CEOs to influence their own pay. Despite cuts in pay, CEOs did not exert less effort. Further, nonprofit performance improved after the legislation, as reflected in larger donor contributions, more volunteers, and greater revenues. We show that these results are consistent with the predictions of a simple principal-agent model with compensation rigging. Overall, our results suggest that regulation that targets the pay-setting process can be effective at improving organizational outcomes at nonprofits.