Regulating CEO Pay: Evidence from the Nonprofit Revitalization Act

67 Pages Posted: 9 Feb 2021

See all articles by Ilona Babenko

Ilona Babenko

Arizona State University

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

Rik Sen

University of New South Wales (UNSW)

Date Written: February 1, 2021

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.

Keywords: executive compensation, regulation, nonprofit organizations, managerial power

JEL Classification: G30, G32

Suggested Citation

Babenko, Ilona and Bennett, Benjamin and Sen, Rik, Regulating CEO Pay: Evidence from the Nonprofit Revitalization Act (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3777576 or http://dx.doi.org/10.2139/ssrn.3777576

Ilona Babenko (Contact Author)

Arizona State University ( email )

Department of Finance
W.P. Carey School of Business
Tempe, AZ 85287
United States

Benjamin Bennett

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: https://sites.google.com/site/benjaminbennettfinance/home

Rik Sen

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

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