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Inside the Black Box: The Role and Composition of Compensation Peer Groups
Michael W. Faulkender University of Maryland - Robert H. Smith School of Business Jun Yang Indiana University March 15, 2007 AFA 2008 New Orleans Meetings Paper Abstract: This paper documents the features of the newly disclosed compensation peer groups and demonstrates their significant role in explaining variations in CEO compensation beyond that of other benchmarks such as the industry-size peers. After controlling for industry, size, visibility, CEO responsibility and talent flows, we find that firms appear to select highly paid peers to justify their CEO compensation and this effect is stronger in firms where the compensation peer group is smaller, where the CEO is the Chairman of the Board of Directors, where the CEO has longer tenure, and where directors are busier serving on multiple boards.
Keywords: Corproate Governance, Executive Compensation, Compensation Peer Groups JEL Classifications: G34, J33 Working Paper SeriesDate posted: March 21, 2007 ; Last revised: June 10, 2009Suggested Citation |
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