36 Pages Posted: 21 Mar 2007 Last revised: 14 May 2014
Date Written: May 1, 2010
This paper considers the features of the newly disclosed compensation peer groups and demonstrates their significant role in explaining variations in chief executive officer (CEO) compensation beyond that of other benchmarks such as the industry-size peers. After controlling for industry, size, visibility, CEO responsibility, and talent flows, we find that firms appear to select highly paid peers to justify their CEO compensation and this effect is stronger in firms where the compensation peer group is smaller, where the CEO is the chairman of the board of directors, where the CEO has longer tenure, and where directors are busier serving on multiple boards.
Keywords: Corproate Governance, Executive Compensation, Compensation Peer Groups
JEL Classification: G34, J33
Suggested Citation: Suggested Citation
Faulkender, Michael W. and Yang, Jun, Inside the Black Box: The Role and Composition of Compensation Peer Groups (May 1, 2010). AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=972197 or http://dx.doi.org/10.2139/ssrn.972197
By Kevin Murphy