Peer choice in CEO compensation

Ana M. Albuquerque*, Gus de Franco, Rodrigo S. Verdi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

77 Citations (Scopus)

Abstract

Current research shows that firms are more likely to benchmark against peers that pay their Chief Executive Officers (CEOs) higher compensation, reflecting self serving behavior. We propose an alternative explanation: the choice of highly paid peers represents a reward for unobserved CEO talent. We test this hypothesis by decomposing the effect of peer selection into talent and self serving components. Consistent with our prediction, we find that the association between a firm's selection of highly paid peers and CEO pay mostly represents compensation for CEO talent.
Original languageEnglish
Pages (from-to)160-181
Number of pages22
JournalJournal of Financial Economics
Volume108
Issue number1
DOIs
Publication statusPublished - Apr 2013

Keywords

  • Benchmarking
  • Executive compensation
  • Peer groups

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