The Effects of Table Versus Formula Presentation Formats on Investors’ Judgment about Executive Compensation

Posted by Yifei Xia - May 12, 2020

In a recent study published in European Accounting Review (EAR), Jun Han and I investigate how the data presentation format of executive compensation disclosures affects investors’ compensation- and investment-related judgments and decisions. Specifically, we examine whether, how, and why investors’ approval ratings of cash bonus schemes differ across data presentation formats.

In 2017, the European Parliament updated the Shareholder Rights Directive (2007/36/EC) by incorporating a say-on-pay regime for investors at the EU level (Obermann & Velte, 2018). According to the amendment, companies must hold an advisory vote on executive compensation and issue an implementation report explaining the annual change in or evolution of their pay practices (European Parliament, 2017). Say-on-pay voting increases investors’ voice in relation to executive compensation, making it more important to understand the determinants of investors’ voting decisions and their decision-making processes.

Compensation disclosures should enable investors to assess whether the executive compensation policies set forth by the board represent their interests. Inadequate disclosure may hamper investors’ understanding of the pay–performance relationship, which has been a frequent reason for say-on-pay failure over the last few years (Farient Advisors LLC, 2011; Semler Brossy, 2018). Our study focuses on the data presentation format, which is an obvious and easily accessible characteristic of compensation disclosures, by investigating its influence on how investors perceive disclosure information and on their voting decisions.

Managers have discretion over the format of cash bonus scheme disclosures and usually adopt tables, formulae, or text to present numerical information. In the study, we compare bonus schemes presented in the table and formula formats and find an interaction effect between data presentation format and compensation favorability. We conduct two experiments to examine the format effects and their underlying mechanisms. The experimental method allows us to draw causal inferences regarding the relationship between the data presentation formats and investors’ responses.

We posit two mechanisms of disclosure formats that may affect investors’ perceptions and judgment – the understandability effect and the halo effect. The experimental results are consistent with our prediction that the formats interact with compensation favorability to affect investors’ approval ratings and appraisals of investment prospects. When a manager receives unfavorable compensation due to missed performance targets, the table format is easier to understand than the formula format, whereas the latter appears more scientific than the former. These two effects work in opposite directions and therefore, result in an insignificant difference in approval ratings when the table, versus the formula, format is used. However, when the manager receives favorable compensation for beating performance targets, investors do not pay much attention to the disclosure’s understandability but still favor the formula format, as it has a scientific appearance. Therefore, we find that investors’ approval ratings are higher when using the formula format than the table format.

Our study contributes to several research areas. We respond to calls for research on disclosure effects and shareholder perception in the say-on-pay voting context. Our results show that factors other than the compensation scheme itself (e.g., data presentation format and compensation favorability) matter. The findings have implications for companies seeking investor support and for investors who raise concerns over the pay–performance relationship. Second, we advance understanding of the determinants of say-on-pay votes. We provide evidence that firm performance alone (target-beaten versus target-missed) does not directly affect investors’ voting decisions, but rather interacts with disclosure formats to affect these decisions. Indeed, investors’ perceptions of the pay–performance link are important. In addition, we add to knowledge of the halo effect by introducing it to the financial disclosure research. We also contributes to data presentation research in the psychology field by exploring the effectiveness of the formula format in presenting numerical information.

More importantly, we provide important practical implications for regulators, particularly those in EU member states where the say-on-pay regime is being implemented. We document an unintended disclosure effect on shareholder voting, suggesting that the presentation format of numerical information may affect investors’ perceptions of executive compensation and the monitoring effectiveness of say-on-pay. The results lend some initial support to the intuition that regulators may improve say-on-pay effectiveness by eliminating the unintended influence of disclosure format in the process of policy implementation.


Discover more about our study at

To cite this article: Yifei Xia & Jun Han (2020): The Effects of Table Versus Formula Presentation Formats on Investors’ Judgment about Executive Compensation, European Accounting Review, DOI: 10.1080/09638180.2020.1741419



European Parliament. (2017). Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (Text with EEA relevance).

Farient Advisors LLC. (2011). Say on pay: Identifying investor concerns.

Obermann, J., & Velte, P. (2018). Determinants and consequences of executive compensation-related shareholder activism and say-on-pay votes: A literature review and research agenda. Journal of Accounting Literature, 40, 116–151.

Semler Brossy. (2018). 2018 Say on pay and proxy results.