This paper investigates whether CEO pay disparity reflects efficient contracting or managerial power by exploiting a quasi-natural experiment which mandated option expensing, FASB ASC 718. We find supportive evidence for the managerial power hypothesis. Relative to low pay disparity firms, firms characterized by high pay disparity exhibit a significantly larger decline in options pre- versus post-expensing. Further, high pay disparity firms are found to replenish their compensation with cash-based rather than other equity-based pay. Our findings suggest CEOs in high pay disparity firms exploited the free accounting cost of options to inflate their pay rather than for their incentive properties.

This study investigates whether gender pay inequality in the top management team, measured by gender pay slice (GPS), is a factor in Say on Pay (SoP) voting as required by the 2010 Dodd-Frank Act. Since CEOs are known to play a distinct role in SoP voting, we treat CEOs separately and define GPS as the fraction of total non-CEO executive compensation captured by females. Controlling for numerous factors including CEO pay and CEO gender, ISS recommendations, pay composition, firm performance, and other firm characteristics, we find robust evidence of a negative relation between non-CEO GPS and SoP votes, but this gender-based difference in SoP voting does not extend to the CEO. Taken together, our findings imply that gender equality in terms of SoP voting is still an issue for female executives at the sub-top level.