Do executive salary disclosures help firms?

At the same time, the 'pay-versus-performance' rule necessitates disclosing the link between executive compensation and metrics like total shareholder return.

THE question of whether mandatory executive pay disclosure has a positive impact on organisations is complex and has been the subject of continuous debate.

Proponents argue that transparency fosters accountability and aligns compensation with performance. Critics suggest that it creates a “race to the top” on salaries or hampers the ability to attract talent.

In Zimbabwe, pay disclosure regulations for listed companies have failed to take off due to resistance. What these corporations fear, no one knows.

Let us explore mandatory and optional executive pay disclosure practices worldwide and the evidence for their effects on businesses.

Global trends and outcomes

The United Kingdom stands out with stringent executive compensation disclosure regulations since 2002, including provisions like the “Say on Pay,” which grants shareholders a voice in remuneration packages.

Evidence suggests this transparency has influenced investor voting behaviour and put modest downward pressure on excessive CEO pay. In the US, the Dodd-Frank Act of 2010 mandates 'pay-versus-performance' disclosure to link executive pay with metrics like total shareholder return.

While definitive conclusions are challenging to draw, research suggests disclosure may contribute to a slower increase in CEO pay after the legislation.

The European Union (EU) displays a spectrum of disclosure practices across member states, with the overall impact being increased transparency. This is generally linked to better alignment of executive pay with performance, though not necessarily leading to a decrease in overall pay levels for CEOs.

The United Kingdom

The UK's Directors' Remuneration Report Regulations (2002) mandate extensive disclosure requirements for executive compensation, ensuring companies provide detailed breakdowns of pay elements and their alignment with performance targets.

The “Say on Pay” provision is a cornerstone of the UK system, granting shareholders a binding or advisory vote on remuneration policies. Studies demonstrate that these regulations have increased investor dissent on packages, with some companies facing rejected proposals.

The impact on CEO pay is evident, with evidence suggesting modest downward pressure on excessively high compensation over time —  some studies estimate a 5-10% reduction.

However, research also indicates a possible 'repackaging' effect, where the pay structure might change towards more long-term incentives rather than leading to significant overall pay decreases.

United States

In the United States, the Dodd-Frank Reform and Consumer Protection Act (2010) introduced significant mandates for executive pay disclosure. Section 953(b) requires publicly traded companies to reveal the CEO-to-median-worker pay ratio.

At the same time, the 'pay-versus-performance' rule necessitates disclosing the link between executive compensation and metrics like total shareholder return.

Isolating the impact of these disclosures on CEO pay from other factors like market conditions and board reforms is complex. Some studies point to a potential slowdown in the rate of increase in CEO pay in the years following Dodd-Frank compared to prior trends, but a direct causal link to disclosure remains uncertain.

The CEO-to-worker pay ratio disclosure has undeniably raised awareness about pay disparities. However, whether it has led to a demonstrable narrowing of these gaps is a subject of ongoing debate.

European Union

The European Union's approach to executive pay disclosure differs from a single, unified mandate, instead allowing member states flexibility in their regulations.

This results in a range of reporting stringency across the region. Despite this variation, the overall trend across the EU is towards increased transparency.

Research at the EU level generally demonstrates a positive link between enhanced disclosure and better alignment of executive pay with long-term company performance.

While it is challenging to prove that disclosure alone directly lowers overall CEO pay levels (similar to the US situation), some evidence suggests that it can help curb the growth of excessively high pay packages within the EU.

The challenge with pay disclosures

Several important considerations influence how we assess the impact of executive pay disclosure regulations. Firstly, time plays a crucial role — the full effects of such regulations may take several years to become fully apparent.

Secondly, general economic trends significantly impact executive pay, potentially masking the isolated effects of disclosure mandates.

For instance, a booming stock market could inflate CEO pay even with disclosure rules in place.

Finally, the specific design of disclosure regulations is essential. More robust and targeted mandates tend to have a greater impact on curbing excessive pay and aligning compensation with performance metrics than weaker reporting requirements.


Across most African countries, mandatory executive pay disclosure laws are largely absent, leaving transparency in this area mostly voluntary or dictated by specific industry regulations.

Some stock exchanges within Africa may have guidelines or recommendations for executive pay disclosures within their listing rules (like the Johannesburg Stock Exchange in South Africa), but these guidelines often lack strict enforcement.

Certain sectors, such as banking and finance, may have higher disclosure requirements imposed by their respective governing bodies.

Emerging trends and examples:

South Africa leads in voluntary pay disclosures compared to other African nations. This is partly influenced by their King IV Code on Corporate Governance, which advocates for transparency in executive remuneration.

The Nigerian Securities and Exchange Commission (SEC) has some guidelines for executive compensation reporting for listed companies. Yet, in practice, compliance varies.

While formal regulations are limited, there is growing awareness about the importance of pay disclosures in Africa. International investors, rising interest in corporate governance, and efforts by advocacy groups drive this.

Challenges and considerations

Challenges to effective executive pay disclosure in Africa include a prevalent culture of secrecy surrounding executive compensation in many companies, hindering voluntary disclosures.

Even where guidelines exist, weak enforcement mechanisms limit their impact on practice.

Additionally, the scarcity of reliable data on executive pay across African companies presents challenges in benchmarking practices and tracking trends over time.

The future outlook

Pay disclosures in Africa will likely gain more traction in the coming years.

Greater emphasis on corporate governance and the influence of international investors are likely to drive increased transparency, even if not strictly through legislation in the short term.

  • Nguwi is an occupational psychologist, data scientist, speaker and managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and HR consulting firm. Phone +263 24 248 1 946-48/ 2290 0276, cell number +263 772 356 361 or e-mail: [email protected] or visit


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