University at Buffalo School of Management

22 Buffalo Business Spring 2023 A controversial SEC rule did little to rein in excessive CEO pay Publicly traded companies are required to disclose the ratio of their CEO compensa- tion to the median pay of their employees — a rule the U.S. Securities and Exchange Commission (SEC) adopted in 2018 aer backlash over exces- sive CEO pay. But new research shows the average CEO's total earnings did not change as a result. In fact, the study found that companies merely adjusted their CEO compensation mix to limit components — like stock awards and non-cash perks — that could generate negative headlines. Published in the Journal of Accounting Research, the study is among the first to examine the consequences of the controver- sial disclosure mandate. "Critics questioned the effectiveness or appropriateness of this measure, while proponents argued that it could help inform shareholder decisions and reduce income inequality," says Inho Suk, associate profes- sor of accounting and law. The researchers looked at compensa- tion data from more than 2,600 companies on the Russell 3000 Index. In addition, they reviewed media coverage and shareholder reaction around firms' initial ratio disclo- sure aer the rule went into effect for fiscal years ending on or aer Dec. 31, 2017. "Our results clearly show that reporting this ratio did not motivate boards to proac- tively lower CEOs' total pay or tie compensa- tion more closely to company performance," says Michael Dambra, associate professor and Kenneth W. Colwell Chair of Accounting and Law. "Instead, many boards moved to reduce the sensitivity of the CEO's wealth to equity price changes — particularly at companies that expected more external scrutiny." When firms had high pay disparities that were not explained by company perfor- mance, the study showed shareholders voiced their displeasure by selling shares or casting negative votes on the CEO compen- sation package, called "say-on-pay votes." "Our study should inform policymak- ers that regulations intended to 'name and shame' wealthy executives can lead to unin- tended consequences," Dambra says. "In our opinion, this disclosure mandate did not benefit shareholders." Wonjae Chang, PhD '22, from City University of Hong Kong and Bryce Schon- berger from University of Colorado Boulder co-authored the study. Insights Suk Dambra By analyzing how leaders have reacted to past crises, a new School of Management study reveals what the work- place of the future might look like. Published in the Journal of Management History, the research suggests that several changes will come to the workplace in the wake of COVID-19, including an accelerated adoption of virtual technologies, altered health behaviors and increased autonomy between employees and managers. "Crises can result in permanent changes in our social and work lives, in ways we never could have realized before," says the study's co-author Kate Bezrukova, associate professor of organization and human resources. "By understanding previ- ous crises, managers and organizations can adapt when faced with similar catastrophes." From the nine crises they studied, here are a few examples of the unexpected — and sometimes beneficial — outcomes: • London Subway Strike (2014) – This two-day disruption for travelers resulted in commuters finding more efficient ways to get to work that persist to this day. • Flu Pandemic (1918) – There were many parallels between 1918 and the COVID- 19 pandemic, and school closing was controversial then, too. But in New York City, schools stayed open, and the city's health commissioner attributed New York's relative success with the pandemic to that decision. Leaders rationalized that schools were cleaner, more spacious and more likely to be regularly inspected than the tiny homes many children lived in at the time. • Black Death (1346) – Even events with as much mass suffering as the bubonic plague can have a silver lining for survivors, according to historians. As deaths from the pandemic swept across large areas of Europe, the labor pool shrank drastically, leading to the end of the feudal system and better wages for workers. The researchers say the outcomes of these crises show how leaders can effect change. "Leaders should leverage their personal strengths to bring about change, such as how Ukrainian President Volodymyr Zelenskyy has used his broadcasting and performing experience in video appeals for external aid and support in defense against the Russian invasion," says Bezrukova. "As we inch toward the other side of this pandemic, we have an opportunity to rethink our broken relationship to work," she says. "The pandemic was an inflection point, and what happens next is up to us. We've found there are benefits to virtual work, wearing masks and improved ventila- tion, and 'pandemic epiphanies' have led to fundamental reassessments of our place in the working world." What past crises can teach us about the future of work Bezrukova

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