Relative Performance Evaluation in CEO Compensation: A Talent-Retention Explanation

Journal of Financial and Quantitative Analysis, Forthcoming

European Corporate Governance Institute - Finance Working Paper No. 615/2019

43 Pages Posted: 5 May 2014 Last revised: 11 Jul 2019

See all articles by David De Angelis

David De Angelis

Rice University - Jesse H. Jones Graduate School of Business

Yaniv Grinstein

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

Date Written: May 28, 2019

Abstract

Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First, we examine the RPE terms in compensation contracts and document features that are consistent with retention motives. Second, using a novel empirical specification for detecting RPE, we find RPE is less prevalent when CEO talent is less transferrable: among specialist CEOs, founder CEOs, and retirement-age CEOs, as well as in industries and states where the market for CEO talent is more restrictive.

Keywords: CEO Compensation, Relative Performance Evaluation

JEL Classification: G30, G34, J33, M12, M52

Suggested Citation

De Angelis, David and Grinstein, Yaniv, Relative Performance Evaluation in CEO Compensation: A Talent-Retention Explanation (May 28, 2019). Journal of Financial and Quantitative Analysis, Forthcoming; European Corporate Governance Institute - Finance Working Paper No. 615/2019. Available at SSRN: https://ssrn.com/abstract=2432473 or http://dx.doi.org/10.2139/ssrn.2432473

David De Angelis (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

HOME PAGE: http://www.de-angelis.com

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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