Why Have CEO Pay Levels Become Less Diverse?

Gaizka Ormazabal, Torsten Jochem and Anjana Rajamani

No 15523, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We document that, over the last decade, the cross-sectional variation in CEO pay levels has declined precipitously, both at the economy level and within industry and industry-size groups. We ï¬ nd evidence consistent with one potential explanation for this pattern; reciprocal benchmarking (i.e., ï¬ rms are more likely to include each other in the disclosed set of peers used to benchmark pay levels). We also ï¬ nd empirical support for three factors contributing to the increase in reciprocal benchmarking; the mandatory disclosure of compensation peer groups, say on pay, and proxy advisory influence. Finally, we ï¬ nd that reciprocal benchmarking has meaningful consequences on managerial behavior; it reduces risk-taking by weakening external tournament incentives.

Keywords: Clustering of executive pay; Pay diversity; Competitive benchmarking; Pay transparency; Pay disclosure; Tournament incentives (search for similar items in EconPapers)
JEL-codes: G3 G34 G38 M12 M52 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-cfn
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