Inside the Black Box: The Role and Composition of Compensation Peer Groups
Michael W. Faulkender
University of Maryland - Robert H. Smith School of Business
Indiana University - Kelley School of Business - Department of Finance
May 1, 2010
AFA 2008 New Orleans Meetings Paper
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
Date posted: March 21, 2007 ; Last revised: May 14, 2014
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