Performance peer groups in CEO compensation contracts

Tor‐Erik Bakke · Hamed Mahmudi · Ashley N. Newton

22 citations0/0 files storedFinancial Management

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Corporate Finance and Governance Auditing, Earnings Management, Governance Accounting and Organizational Management

Abstract

Abstract How do firms choose performance peer groups used in chief executive officer (CEO) relative performance evaluation contracts? We find that while firms, for the most part, choose performance peers to better identify their CEOs’ impact on firm performance, they also tend to select underperforming peers. Dynamically, we find that peers that are added and retained every year are weaker than ones that were not chosen. These findings suggest managers may have some influence on the choice of performance peers. Finally, using a quasi‐natural experiment, we find that enhanced disclosure did not affect the tendency of firms to select underperforming peers.

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References

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