Peer choice in CEO compensation

Ana M. Albuquerque, Gus De Franco and Rodrigo S. Verdi

Journal of Financial Economics, 2013, vol. 108, issue 1, 160-181

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.

Keywords: Executive compensation; Benchmarking; Peer groups (search for similar items in EconPapers)
JEL-codes: G34 J31 J33 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (62)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:108:y:2013:i:1:p:160-181

DOI: 10.1016/j.jfineco.2012.10.002

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