Policies mandating CEO pay disclosure are often designed to promote transparency and curb wage inequality by addressing concerns over excessive executive compensation. However, a recent IZA discussion paper by Agata Maida and Vincenzo Pezone reveals a stark contrast between the intended and actual effects of such reforms. Instead of reducing income disparities, the disclosure of CEO pay in Italy following a 1998 reform disproportionately benefited top earners within firms, ultimately exacerbating wage inequality.
High CEO pay leads to uneven wage growth
The study finds that firms with high-disclosed CEO compensation experienced significant wage increases at the top end of the pay scale. Workers in the top 5% and 1% of the wage distribution saw notable gains, while the impact on average wages was marginal. As a result, wage inequality within these firms expanded, benefiting the highest earners disproportionately.
Bargaining power as the catalyst
The researchers attribute this effect to shifts in bargaining power rather than changes in workforce composition. High-earning employees, particularly those with access to top management, leveraged the transparency to negotiate higher wages, further skewing the pay distribution.
Regional and experience-based variations
The impact of CEO pay disclosure was not uniform across all workers. Less experienced employees and those based in the primary regions of a firm’s operations were more likely to experience wage increases at the top end. This highlights how proximity to company headquarters and limited prior knowledge of pay structures amplify the effects of transparency.