Are all CEOs above average? An empirical analysis of compensation peer groups and pay design
Companies can potentially use compensation peer groups to inflate pay by choosing peers that are larger, choosing a high target pay percentile, or choosing peer firms with high pay. Although peers are largely selected based on characteristics that reflect the labor market for managerial talent, we find that peer groups are constructed in a manner that biases compensation upward, particularly in firms outside the Standard & Poor's (S&P) 500. Pay increases close only about one-third of the gap between the pay of the Chief Executive Officer (CEO) and the peer group, however, suggesting that boards exercise discretion in adjusting compensation. Preliminary evidence suggests that increased disclosure has reduced the biases in peer group choice.
Year of publication: |
2011
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Authors: | Bizjak, John ; Lemmon, Michael ; Nguyen, Thanh |
Published in: |
Journal of Financial Economics. - Elsevier, ISSN 0304-405X. - Vol. 100.2011, 3, p. 538-555
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Publisher: |
Elsevier |
Keywords: | Executive compensation Benchmarking Peer groups CEO pay |
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