Inside the Black Box: The Role and Composition of Compensation Peer Groups
This paper documents the features of compensation peer groups and demonstrates their significant role in understanding variations in CEO compensation. We hand-collect a sample of 373 of the S&P 500 firms and 235 of the S&P Mid-Cap 400 firms that provided explicit lists of compensation peer companies in their proxy statements in the 2006 fiscal year. Results show that the median pay level of the compensation peer group dominates the median pay level of the industry peers, industry/size peers, and the firm’s performance peers, as well as the pay level of the firm’s CEO in the previous year, in explaining CEO compensation (after controlling for size, firm performance, and CEO characteristics). Examinations of factors explaining compensation peer group composition demonstrate that even after controlling for industry, size, and equity performance, peer group composition is significantly affected by the level of CEO compensation at the potential peers. Firms appear to select highly paid peers to justify greater CEO compensation and this effect is stronger in firms where the CEO is the Chairman of the Board, the board is busier or older, and Towers Perrin is the compensation consultant. On the other hand, the selection bias is lower in firms where active institutional shareholders have greater ownership, the CEO is newly hired, and shareholders have expressed concerns on executive compensation.
Michael Faulkender Jun Yang
R.H. Smith School of Business, University of Maryland 4411 Van Munching Hall, University of Maryland Kelley School of Business, Indiana University 1309 E 10th Street, Bloomington, IN 47405
国际会议
广州
英文
1-49
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）