Relative Performance Evaluation in CEO Compensation: Evidence from the 2006 Disclosure Rules

De Angelis, David; Grinstein, Yaniv

doi:10.2139/ssrn.1710386

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Relative Performance Evaluation in CEO Compensation: Evidence from the 2006 Disclosure Rules

Johnson School Research Paper Series No. 39-2010

AFA 2012 Chicago Meetings Paper

53 Pages Posted: 17 Nov 2010 Last revised: 12 Mar 2012

See all articles by David De Angelis

David De Angelis

University of Houston - C.T. Bauer College of Business

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Reichman University - Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Date Written: December 7, 2011

Abstract

In December 2006, the Securities and Exchange Commission issued new rules that require the disclosure of the use of relative performance evaluation (RPE) in CEO compensation contracts. We find that about a third of the sample firms use RPE in the CEO compensation contract. On average, RPE users tie about half of the estimated value of the awards to RPE. Firms tie a larger fraction of their awards to RPE when they face less uncertainty regarding the right performance benchmark. We find little evidence to support hypotheses based on product market competition, CEO hedging constraints, or managerial power.

Keywords: CEO Compensation, Relative Performance Evaluation

JEL Classification: G34, G38, J33

Suggested Citation: Suggested Citation

De Angelis, David and Grinstein, Yaniv and Grinstein, Yaniv, Relative Performance Evaluation in CEO Compensation: Evidence from the 2006 Disclosure Rules (December 7, 2011). Johnson School Research Paper Series No. 39-2010, AFA 2012 Chicago Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1710386 or http://dx.doi.org/10.2139/ssrn.1710386