Regulating CEO Pay: Evidence from the Nonprofit Revitalization Act
67 Pages Posted: 9 Feb 2021
Date Written: February 1, 2021
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.
Keywords: executive compensation, regulation, nonprofit organizations, managerial power
JEL Classification: G30, G32
Suggested Citation: Suggested Citation