Do experts on the compensation committee prevent CEOs from using their influence to benchmark against better-paid peers?
(2022) , 53 pages
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- et. al.
- Abstract
- Peer group benchmarking, which compares executive compensation contracts against a group of similar companies, is a widely used but also heavily debated technique to set executive compensation. Critics argue that it has contributed to the increase in top executive compensation. Prior research indeed confirms that companies are more likely to benchmark against peers that pay their CEO higher compensation. Using an eleven-year S&P 900 sample, we first examine the channels through which CEOs might use their influence to opportunistically benchmark against better-paid peers. Second, we also investigate whether two different types of compensation committee expertise, namely industry expertise and human resource expertise, can be helpful in counteracting CEO influence on the benchmarking process. Our findings show that compensation committees with at least one industry expert are able to mitigate the effect of CEO influence on peer selection. However, we do not find a mitigating effect of the presence of compensation committee human resource expertise. In additional analyses, we show that human resource experts seem to have less authority to influence compensation committee decision-making, compared to industry experts. Our results are relevant for regulators as they largely neglected the role of expertise in compensation committees.
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Antoons, C., & et al. (2022). Do experts on the compensation committee prevent CEOs from using their influence to benchmark against better-paid peers? https://hdl.handle.net/2078.5/108067