Making themselves look good: do peer group comparisons inflate CEO pay?

Deskripsi

While peer benchmarking is widely used—nearly 70% of S&P 500 firms employ it—the study reveals systematic biases in how peer groups are constructed. Smaller firms tend to select larger peers (25% bigger on average), while large firms choose peers that pay CEOs 6–8% more than objectively comparable firms. These biases create upward pressure on compensation, as boards often target pay above the 50th percentile of their peer group. The study highlights unresolved questions about the behavioral drivers of peer group selection, such as aspirational biases among directors or the influence of compensation consultants. It calls for further research into the processes behind peer group formation and their implications for pay equity and corporate governance.