Changing the blame game: Does the presence of a pay ratio disclosure impact nonprofessional investors’ reactions to CEOs’ internal attributions for poor firm performance?

We investigate how the presence of the newly-mandated pay ratio disclosure—the ratio of annual CEO compensation to median employee compensation—influences how nonprofessional investors react to a CEO’s internal attributions for poor firm performance. We expect the pay ratio disclosure to increase investors’ perceptions of a CEO’s status and, therefore, the persuasiveness of a CEO’s internal attributions. Consistent with expectations, results of an experiment demonstrate that relative to blaming oneself, blaming other firm employees is more effective at reducing investors’ perceptions of a CEO’s responsibility for poor firm performance when a pay ratio disclosure is present versus absent. The presence of a pay ratio disclosure also appears to temper the negative consequences for CEO trustworthiness typically thought to accompany blaming others. Our results inform managers about the impact of their attributions for poor firm performance and regulators about potential unintended consequences of pay ratio disclosures.