This paper tests whether pay fell for CEOs at health insurers in the years after the ACA deductibility cap went into effect. We control for revenue growth, profit growth, increase in market value, and other variables likely to affect CEO pay. Our key findings are:
There is no evidence that limiting the deductibility of CEO pay for health insurers lowered this pay relative to other industries, after controlling for other determinants of pay.
The failure of reduced deductibility to slow growth in CEO pay in the health insurance sector relative to other sectors means that the TCJA provisions are unlikely to significantly affect CEO pay more widely.
The assertion that rapid growth in CEO pay in recent decades has simply reflected shareholders rationally rewarding excellent performance by executives is flawed. It can hardly be rational for shareholders to ignore tax changes that make CEOs significantly more expensive to them. Instead, shareholders' failure to respond to the increasing expense of CEO pay strongly supports the view that weaknesses in corporate governance have failed to discipline the growth of CEO pay.
To restrain growth in CEO pay we need reforms to improve corporate governance and give shareholders more power over corporate executives.