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Compensation Peer Groups and their Relation with CEO Pay
Brian D. Cadman University of Utah - David Eccles School of Business Mary Ellen Carter Boston College - Department of Accounting Katerina Semida University of Pennsylvania - The Wharton School March 1, 2009 Abstract: We examine whether compensation peer firms are selected opportunistically to increase CEO pay. Using a sample of 608 firms from the S&P 1500 and 2,154 peer firms, identified from their 2006 proxy statements. We find only limited evidence that firms choose peer groups opportunistically. Although sample firms appear to select bigger and better performing peer firms relative to other potential peers, only size has any power in explaining components of sample firm CEO pay. In addition, firms often select peers that are from the same industry and peers that also have selected the sample firm as its peer, both capturing similarities in economic characteristics between sample firms and chosen peers. Our evidence is more consistent with firms using compensation peer firms to benchmark CEO pay in a competitive labor market than firms strategically selecting peer firms to influence or justify greater CEO pay.
Keywords: Executive compensation, peer groups, labor markets JEL Classifications: J31, J41, G34, D82, M52 Working Paper SeriesDate posted: February 27, 2009 ; Last revised: August 27, 2009Suggested CitationContact Information
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