DP15523 Why Have CEO Pay Levels Become Less Diverse?
|Author(s):||Torsten Jochem, Gaizka Ormazabal, Anjana Rajamani|
|Publication Date:||December 2020|
|Keyword(s):||Clustering of executive pay, competitive benchmarking, pay disclosure, pay diversity, pay transparency, tournament incentives|
|JEL(s):||G3, G34, G38, M12, M52|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15523|
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 inï¬?uence. Finally, we ï¬?nd that reciprocal benchmarking has meaningful consequences on managerial behavior; it reduces risk-taking by weakening external tournament incentives.