Peer choice in CEO compensation |
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| Authors: | Ana M Albuquerque Gus De Franco Rodrigo S Verdi |
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| Institution: | 1. School of Management, Boston University, 595 Commonwealth Avenue, Boston, MA 02215, United States;2. CATÓLICA-LISBON Business & Economics, Portugal;3. Rotman School of Management, University of Toronto, Canada;4. MIT Sloan School of Management, United States |
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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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| Keywords: | G34 J31 J33 |
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