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Inside the Black Box: The Role and Composition of Compensation Peer GroupsMichael W. FaulkenderUniversity of Maryland - Robert H. Smith School of Business Jun YangIndiana University May 1, 2010 AFA 2008 New Orleans Meetings Paper Abstract: This paper considers the features of the newly disclosed compensation peer groups and demonstrates their significant role in explaining variations in chief executive officer (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.
Number of Pages in PDF File: 36 Keywords: Corproate Governance, Executive Compensation, Compensation Peer Groups JEL Classification: G34, J33 working papers seriesDate posted: March 21, 2007 ; Last revised: July 26, 2010Suggested Citation |
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