Are All CEOs above Average? An Empirical Analysis of Compensation Peer Groups and Pay Design

48 Pages Posted: 23 Mar 2009 Last revised: 17 Aug 2009

See all articles by John M. Bizjak

John M. Bizjak

Texas Christian University

Michael L. Lemmon

University of Utah - Department of Finance

Thanh Lai Nguyen

University of Utah - Department of Finance

Date Written: August 14, 2009

Abstract

Critics contend that the use of compensation peer groups has resulted in inflated CEO pay that cannot be justified based on economic fundamentals. We examine this issue using the mandated disclosure of compensation peers that began in 2006. Although firms generally select compensation peers based on characteristics that reflect the labor market for managerial talent, we find evidence that the selected peers are chosen in a manner that biases compensation upward. The bias in peer group selection is unrelated to corporate governance and instead appears to be an institutionalized or structural part of the pay setting process. We provide some preliminary evidence that increased disclosure has reduced the biases in peer group choice.

Keywords: managerial compensation, peer group, executive pay

JEL Classification: G30, G31, J31, J33

Suggested Citation

Bizjak, John M. and Lemmon, Michael L. and Nguyen, Thanh Lai, Are All CEOs above Average? An Empirical Analysis of Compensation Peer Groups and Pay Design (August 14, 2009). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1364775 or http://dx.doi.org/10.2139/ssrn.1364775

John M. Bizjak (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-4260 (Phone)

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

Thanh Lai Nguyen

University of Utah - Department of Finance ( email )

1645 E. Campus Center Drive
Salt Lake City, UT 84112
United States
801-581-4995 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
716
Abstract Views
3,357
rank
34,141
PlumX Metrics