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 �nd evidence consistent with one potential explanation for this pattern; reciprocal benchmarking (i.e., �rms are more likely to include each other in the disclosed set of peers used to benchmark pay levels). We also �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 in�uence. Finally, we �nd that reciprocal benchmarking has meaningful consequences on managerial behavior; it reduces risk-taking by weakening external tournament incentives.