Resumo

The exorbitant salaries and failures in the transparency of executive compensation motivated the search for improvements regarding the regulation of executive compensation disclosure. Given this demand for transparency, international bodies and national regulators have developed a wide range of rules and codes on executive compensation, with accounting, tax and disclosure requirements (Chang et al., 2023). Governments in several countries promoted the inclusion or reform of their legislative bases, with stricter rules with the main objective of mitigating agency problems.

The problem question of this study is: What is the impact of executive compensation regulation on the remuneration policy of firms in countries with legal origin in French civil law? The purpose of this study is to identify the effect of mandatory disclosure of executive compensation on the remuneration policy of firms in countries with weak legal protection.

For most regulators, improving disclosure of information on executive compensation is important for corporate governance. Directors and executives would be more sensitive to political pressures and public scrutiny, which would inhibit excess remuneration. This improved monitoring would negatively affect executives, who start to demand higher levels of remuneration as a compensating differential. For La Porta et al., (1998) the origin of legislative systems is a preponderant factor in the structuring and development of governance practices and capital markets.

We conducted a quasi-experiment using the Difference in Differences method and assumed as an exogenous shock the legal framework the regulation disclosure executive compensation. The population of our study comprises firms from countries with weak legal protection (La Porta et al., 1998) and the final sample includes 873 companies: Argentina, Belgium, Brazil, Spain and Italy. Our dependent variables correspond to types of compensation paid to executives as dependent variables, such as total compensation, base salary, bonuses and incentives for shares and options.

Our findings indicate that disclosure of remuneration increased the levels of total compensation in Firms of Belgium, Brazil and Spain and the base salary of Spanish executives. It suggest that the mandatory disclosure of remuneration improves monitoring of executives. The regulation disclosure of the remuneration increases compensation by executive bonuses of Argentina and incentives for shares and options for executives of Spain. In Italy, disclosure of executive compensation decreases compensation for stocks and options.

Our results suggest that mandatory disclosure of executive compensation is not able to mitigate agency problems related to excess compensation, given the increase in total compensation, bonuses and stocks and options. Only in the Italian context, disclosure decreased compensation for stocks and options.

Chang, W., Dambra, M., Schonberger, B., & Suk, I. (2023). Does Sensationalism Affect Executive Compensation? Evidence from Pay Ratio Disclosure Reform. Journal of accounting research, 61(1). https://doi: 10.1111/1475-679X.124585. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and Finance. Journal of Political Economy, 106(6), 1113–1155.