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| Author: | Bizjak, J. Lemmon, M. Nguyen, T. |
| Title: | Are all CEOs above average? An empirical analysis of compensation peer groups and pay design |
| Journal: | Journal of Financial Economics
2011 : JUN, VOL. 100:3 p. 538-555 |
| Index terms: | executives chief executive officers managers skills compensation pay labour markets |
| Language: | eng |
| Abstract: | Firms can potentially use compensation peer groups to inflate pay by choosing peers that are larger, choosing a high target pay percentile, or choosing peer firms with high pay. Although peers are largely selected based on characteristics which reflect the labor market for managerial talent, it is found that peer groups are constructed in a manner that biases compensation upward, especially in firms outside the Standard & Poor's (S&P) 500. Pay increases close only about one-third of the gap between the pay of the Chief Executive Officer (CEO) and the peer group, however, suggesting that boards exercise discretion in adjusting compensation. Preliminary evidence indicate that increased disclosure has reduced the biases in peer group choice. |
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