Why Have CEO Pay Levels Become Less Diverse?

97 Pages Posted: 2 Nov 2020 Last revised: 9 Nov 2020

See all articles by Torsten Jochem

Torsten Jochem

University of Amsterdam

Gaizka Ormazabal

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI)

Anjana Rajamani

Erasmus University Rotterdam (EUR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 22, 2020


We document that, over the last decade, the cross-sectional variation in CEO pay levels has declined precipitously, both at the economy level and within industry and industry-size groups. We find evidence consistent with one potential explanation for this pattern; reciprocal bench-marking (i.e., firms are more likely to include each other in the disclosed set of peers used to benchmark pay levels). We also find empirical support for three factors contributing to the increase in reciprocal bench-marking; the mandatory disclosure of compensation peer groups, say on pay, and proxy advisory influence. Finally, we find that reciprocal bench-marking has meaningful consequences on managerial behavior; it reduces risk-taking by weakening external tournament incentives.

Keywords: Clustering of Executive Pay, Pay Diversity, Competitive Bench-Marking, Pay Transparency, Pay Disclosure, Tournament Incentives

JEL Classification: G3, G34, G38, M12, M52

Suggested Citation

Jochem, Torsten and Ormazabal, Gaizka and Rajamani, Anjana, Why Have CEO Pay Levels Become Less Diverse? (October 22, 2020). European Corporate Governance Institute – Finance Working Paper 707/2020, Available at SSRN: https://ssrn.com/abstract=3716765 or http://dx.doi.org/10.2139/ssrn.3716765

Torsten Jochem (Contact Author)

University of Amsterdam ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Anjana Rajamani

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics