Small firms provide an excellent, yet previously unexamined, laboratory for studying the controversial practice of compensation benchmarking since small firms have the opportunity to benchmark against `peers' whose executive compensation eclipses their own. Using a comprehensive, hand-collected...

Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks' willingness to participate in loans underwritten by banks named in their RPE contracts....