Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960422 | Journal of Financial Economics | 2011 | 18 Pages |
Abstract
Companies 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 that reflect the labor market for managerial talent, we find that peer groups are constructed in a manner that biases compensation upward, particularly 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 suggests that increased disclosure has reduced the biases in peer group choice.
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Accounting
Authors
John Bizjak, Michael Lemmon, Thanh Nguyen,