What effect does disclosing executive pay have on an organization?

Recently, Bloomberg reported that car company Hyundai Motors did something almost unprecedented: It let the outside world in on how much its CEO, Chung Mong Koo, is earning.

This knowledge might not seem integral to the performance of a company, but the decision to reveal this information can be an important one.

Chung's disclosure is motivated by the government in his home country of South Korea, according to the source, which has asked that thousands of companies, as part of the Financial Investment Services and Capital Markets Act, reveal executive pay. The verdict is that his annual salary was the equivalent of $13 million.

Disclosure can help build a sense of accountability, as a paper that is going to feature in the Journal of Accounting and Public Policy notes. In this piece, the authors argue that "disclosure improves board effectiveness at monitoring executives and in strengthening the link between pay and performance."

The source also noted a "higher sensitivity of CEO compensation to performance (both accounting and stock returns) for firms that issue management guidance than for firms that do not."

The abstract for the report notes that such transparency is also important in that it encourages better monitoring of the firm's performance. But it might not be right for you to reveal your figures if it could compromise the image of your business or make things more difficult for the people who work there. 

With management recruitment services in use, your business can successfully find a candidate who is receptive to this approach and leads to a better response from your market and investors. Disclosure might be a major step for your business to take, but it could be worthwhile in improving your organization's performance under new leadership.

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