Abstract

http://ssrn.com/abstract=1786109
 
 

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Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking


Michael W. Faulkender


University of Maryland - Robert H. Smith School of Business

Jun Yang


Indiana University - Kelley School of Business - Department of Finance

March 14, 2011


Abstract:     
Firms regularly justify their CEOs’ compensation by referencing companies with highly paid CEOs with whom they claim to compete for managerial talent. This paper examines whether the 2006 regulatory requirement of disclosing compensation peers has mitigated firms’ opportunistic peer benchmarking of CEO compensation. Our evidence shows that benchmarking manipulation became more severe after enhanced mandatory disclosure, particularly at firms with substantial shareholder complaints about compensation practices, low institutional and director ownership, busy Boards, and large Boards. The effect is the strongest at firms with new CEOs. These findings call into question whether mere disclosure can remedy potential executive compensation abuses.

Number of Pages in PDF File: 50

Keywords: Disclosure Regulation, Corporate Governance, Executive Compensation, Peer Groups, Benchmarking

JEL Classification: G34, J31, J33

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Date posted: March 15, 2011 ; Last revised: May 14, 2014

Suggested Citation

Faulkender, Michael W. and Yang, Jun, Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking (March 14, 2011). Available at SSRN: http://ssrn.com/abstract=1786109 or http://dx.doi.org/10.2139/ssrn.1786109

Contact Information

Michael W. Faulkender
University of Maryland - Robert H. Smith School of Business ( email )
College Park, MD 20742-1815
United States
Jun Yang (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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