The Bright Side of Asymmetric Benchmarking: Evidence from Top Management Team Pay
Bill B. Francis
Rensselaer Polytechnic Institute (RPI) - Lally School of Management
Fordham University; Bank of Finland
New York University (NYU) - Department of Finance
Long Island University
March 17, 2009
CEOs and top management team members have incentives to influence their own pay. Asymmetric benchmarking of pay for CEOs has been linked to the CEO's control over the pay-setting process in previous research. This paper examines whether asymmetric benchmarking of pay exists for top management team members. The presence of asymmetric benchmarking of pay could on one hand suggest that managers are involved in skimming and on the other hand it could mean that firms insulate managers to prevent them from accessing outside opportunities. Using ExecuComp firms from 1992-2007, we find that top management team members are rewarded for good luck but they are not penalized bad luck. Unlike CEOs, asymmetric benchmarking of pay for top management team members is consistent with the retention hypothesis rather than skimming. In particular, we find that asymmetric benchmarking of pay for top management team members has a positive relationship with firm value.
Number of Pages in PDF File: 52
Keywords: CEO compensation,TMT Compensation,Benchmarking, Pay for luck
JEL Classification: D8, G3,J3working papers series
Date posted: March 18, 2009
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