Peer choice in CEO compensation

Ana M. Albuquerque; Gus de Franco; Rodrigo S. Verdi

doi:10.1016/j.jfineco.2012.10.002

Peer choice in CEO compensation

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

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

132 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 language	English
Pages (from-to)	160-181
Number of pages	22
Journal	Journal of Financial Economics
Volume	108
Issue number	1
DOIs	https://doi.org/10.1016/j.jfineco.2012.10.002
Publication status	Published - Apr 2013

Keywords

Benchmarking
Executive compensation
Peer groups

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10.1016/j.jfineco.2012.10.002

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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.",

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KW - Peer groups

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Peer choice in CEO compensation

Abstract

Keywords

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