Benchmarking of Pay Components in CEO Compensation Design

33 Pages Posted: 7 Jun 2021 Last revised: 23 Oct 2022

See all articles by Yaniv Grinstein

Yaniv Grinstein

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

Beni Lauterbach

Bar-Ilan University - Graduate School of Business Administration; European Corporate Governance Institute (ECGI)

Revital Yosef

Bar Ilan University

Date Written: October 20, 2022

Abstract

We document an important element of CEO compensation design – benchmarking of the pay components. Analyzing a panel of CEO compensation data entailing 1,451 S&P 1500 firms during 2006-2019, we find that: 1) Component-of-pay benchmarking more effectively explains CEO compensation design than does total compensation benchmarking; 2) Most pay components exhibit similar benchmarking behavior; the only exception is the milder adjustment of salary to that of peers; 3) Benchmarking of the weight of each component in total compensation is also apparent. Our results suggest that benchmarking of pay components is an economically fundamental part of CEO compensation design.

Keywords: Benchmarking, CEO compensation, peer group, pay mix, pay components

JEL Classification: G34, G38, J31, J33, M12, M52

Suggested Citation

Grinstein, Yaniv and Grinstein, Yaniv and Lauterbach, Beni and Yosef, Revital, Benchmarking of Pay Components in CEO Compensation Design (October 20, 2022). European Corporate Governance Institute – Finance Working Paper No. 768/2021, Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3856026 or http://dx.doi.org/10.2139/ssrn.3856026

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

Beni Lauterbach (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

European Corporate Governance Institute (ECGI) ( email )

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

Revital Yosef

Bar Ilan University ( email )

Ramat Gan
5290002
Israel

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