Competitive Target Pay Practices for CEO Compensation

The competitive target pay policy sets a target dollar number for total CEO compensation within a specified range of the amounts paid to a CEO’s peers chosen from similar sized firms in the same industry. If such a policy were widely adopted by compensation committees, we would observe a negative cross-sectional association between the stock price performance of a firm and change in the equivalent shares awarded to the CEO. That is exactly what we document in our sample of 21,614 firm-year observations, drawn from Execucomp covering the years 1992 to 2018. We go on to demonstrate, via simulations, that such a practice penalizes the sensitivity of CEO wealth to stock price performance as poor (superior) stock price performance is rewarded (penalized) with larger (smaller) equity grants. Directors’ equity compensation also strongly reflects the adoption of competitive pay policies. Finally, we document that Institutional Support Services (ISS)’s recommendations on CEO pay proposals do not appear to recognize the weakened link between CEO wealth and performance due to competitive pay policy

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Year of publication:	[2023]
Authors:	Ferrari, Mascia ; Reggiani, Francesco ; Rajgopal, Shivaram ; O'Byrne, Stephen F.
Publisher:	[S.l.] : SSRN
Subject:	Managervergütung \| Executive compensation \| Führungskräfte \| Managers \| Vergütungssystem \| Compensation system \| Leistungsentgelt \| Performance pay \| Lohn \| Wages

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Extent:	1 Online-Ressource (39 p)
Type of publication:	Book / Working Paper
Language:	English
Notes:	Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 30, 2023 erstellt
Other identifiers:	10.2139/ssrn.4407139 [DOI]
Classification:	G34 - Mergers; Acquisitions; Restructuring; Corporate Governance ; G38 - Government Policy and Regulation ; J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc ; J33 - Compensation Packages; Payment Methods ; J38 - Public Policy ; K22 - Corporation and Securities Law ; K34 - Tax Law ; M12 - Personnel Management ; M41 - Accounting ; M48 - Government Policy and Regulation ; M52 - Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs)
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10014351180