Regulating CEO Pay: Evidence from the Nonprofit Revitalization Act
71 Pages Posted: 9 Feb 2021 Last revised: 9 Dec 2021
Date Written: December 8, 2021
Using compensation data for 14,765 nonprofit organizations, we find that CEO pay dropped by 2-3% when new legislation adopted in New York reduced the ability of CEOs to influence their own pay. Despite cuts in pay, CEOs exerted more eort after the legislation, measured by hours worked. Further, nonprofit performance improved, as reflected in larger donor contributions, more volunteers, and greater revenues. We show that these results are consistent with the predictions of a simple principal-agent model with compensation rigging. Overall, our results suggest that
regulation that targets the pay-setting process for executives can be effective at improving organizational outcomes.
Keywords: executive compensation, regulation, nonprofit organizations, managerial power
JEL Classification: G30, G32
Suggested Citation: Suggested Citation