Compensation Peer Groups and Their Relation with CEO Pay
39 Pages Posted: 27 Feb 2009 Last revised: 11 Dec 2013
Date Written: July 2013
Abstract
We examine whether companies select compensation peer groups opportunistically to increase CEO pay. Using 608 firms from the S&P 1500, 2,154 peer firms identified from their proxy statements, and a pool of potential peers representing the firm’s labor market in which it competes for talent, we find limited evidence that firms choose peer groups opportunistically. Although firms select bigger and better performing peer firms relative to other potential peers, only size has any power in explaining CEO pay. On the other hand, inconsistent with opportunism, sample firms select peers that are more similar to them on other economic characteristics, that use the same compensation consultant and that select the sample firm as a peer. Despite subjecting our analysis to a battery of tests, and even in subsamples where opportunism is more likely at play, we find little support for the conjecture that firms strategically select peer firms to influence greater CEO pay. Our evidence is more consistent with peer firms being used to benchmark CEO pay in a competitive labor market.
Keywords: Executive compensation, peer groups, labor markets
JEL Classification: J31, J41, G34, D82, M52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
Are CEOS Really Paid Like Bureaucrats?
By Brian J. Hall and Jeffrey B. Liebman
-
The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
Good Timing: CEO Stock Option Awards and Company News Announcements
-
The Use of Equity Grants to Manage Optimal Equity Incentive Levels
By John E. Core and Wayne R. Guay
-
The Other Side of the Tradeoff: the Impact of Risk on Executive Compensation
-
Stock Options for Undiversified Executives
By Brian J. Hall and Kevin J. Murphy