Sauder School of Business
University of British Columbia
Email: elena (dot) pikulina (at) sauder.ubc.ca
Phone: +1 604 822 3314
2053 Main Mall, HA864
V6T 1Z2 Canada
Starting in 2018, Section 953(b) of the Dodd-Frank Act requires US public companies to disclose the ratio of CEO to median worker pay. Using filing data of all reporting firms, we document that factors related to CEO skill and worker skill have a first-order effect in explaining the pay ratio. The disclosure of pay ratio, and of the median worker pay in particular, attracted significant media attention and market reaction. Firms with higher pay ratio and lower median worker pay tend to receive more negative market reaction around the disclosure, and the market reaction is more pronounced for larger firms. For smaller firms with less institutional ownership, the market reaction depends on local prosocial preferences in firms’ headquarter states. Finally, we find that during 2018 institutional investors, and mutual funds with stronger prosocial preferences in particular, rebalance their portfolios away from firms with high pay ratio. Overall, the market reaction to the pay ratio disclosure suggests that the disclosure served as a shock to firms’ reputation on social responsibility, and investors’ prosocial preference is becoming an important force in the capital market.
A large literature points to individuals having preferences for autonomy from others when it concerns how much they earn. Using a simple game we evaluate whether subjects show preferences for autonomy without confounds present in the earlier work. We show that in their vast majority, subjects show no preferences for autonomy, in the sense of wanting their payments to be independent of others' actions. This suggests that past findings were likely due to risk attitudes, perceived uncertainty, beliefs, rather than preferences for autonomy in pay per se.
Power—the ability to determine the outcomes of others—usually comes with various benefits: higher compensation, public recognition, etc. We develop a new game, the Power Game, and use it to demonstrate that a substantial fraction of individuals enjoy the intrinsic value of power: they accept a lower payoff in exchange for power over others, without any additional benefits to themselves. We show that preferences for power exist independently of other components of decision rights. Further, these preferences cannot be explained by social preferences and are not driven by mistakes, confusion or signaling intentions. Using a series of additional experiments, we show that valuation of power (i) is higher when individuals directly determine outcomes of others as opposed to simply influence them; (ii) depends on how much discretion they have over those outcomes; (iii) is tied to relationships between individuals; and (iv) likely depends on the domain: value of power is salient in work-place settings but not necessarily in others. We establish that ignoring preferences for power may have large welfare implications. Consequently, our findings provide strong reasons for incorporating preferences for power in the study of political systems, labor contracts and work relationships.
I study the impact of contractual incentives on the behavior of mutual fund managers in annual tournaments. I show that linear contracts as opposed to concave ones induce managers to make larger risk adjustments in response to their relative performance ranks. I argue that contracts with linear fee structure directly translate the convex relationship between past fund returns and fund size into a convex relationship between past performance and managerial pay, whereas concave contracts distort this relationship and make it less convex. I also demonstrate that higher fee rates encourage fund managers to engage into annual tournaments, as they strengthen the connection between fund size and managerial pay in comparison with lower fee rates. The above results are robust to controlling for funds characteristics, such as fund size, age and turnover, as well as year- and style-fixed effects.
Pikulina, Elena, Luc Renneboog, and Philippe N. Tobler. Do Confident Individuals Generally Work Harder? Journal of Multinational Financial Management 44 (2018): 51-60.
Pikulina, Elena, Luc Renneboog, and Philippe N. Tobler. Overconfidence and Investment: An Experimental Approach. Journal of Corporate Finance 43 (2017): 175-192. Experimental instructions.
Pikulina, Elena, and Luc Renneboog. 14. Serial Takeovers, Large Shareholders, and CEOs' Equity-Based Compensation. Research Handbook on Shareholder Power (2015): 297.
Pikulina, Elena, Luc Renneboog, Jenke Ter Horst, and Philippe N. Tobler. Bonus Schemes and Trading Activity. Journal of Corporate Finance 29 (2014): 369-389.
Drobyshevsky, Sergey, Sergey Narkevich, Elena Pikulina, and Dmitry Polevoy. Analysis of a possible bubble on the Russian real estate market. Gaidar Institute for Economic Policy Research Paper Series 128 (2009).
Mount Thompson summit view to the east, Canadian Rockies