It is hard to explain dramatic increase in executive compensation using existing theories based on power or position (Frydman and Jenter (2010)). We attempt to address this issue by using CEO promotion, as chairman of the board, as our identi cation strategy. CEO promotion is expected to have...

We extend Hayes and Schaefer (2009) model to derive testable hypotheses for the existence of the peer-group effect in the CEO labor market. Our model predicts higher growth in relative compensation for CEOs under higher firm-level productivity. The model also predicts increase in peer-group...