Benchmarking of Pay Components in CEO Compensation Design
33 Pages Posted: 7 Jun 2021 Last revised: 23 Oct 2022
Date Written: October 20, 2022
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
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