CEO Power and Relative Performance Evaluation

• 成果类型: Article
• 署名作者: Dikolli, Shane S.; Diser, Viktoria; Hofmann, Christian; Pfeiffer, Thomas
• 署名单位: Duke University; University of Munich; University of Vienna
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12316
• 发表日期: 2018
• 页码: 1279-1296
• 关键词: executive-compensation; corporate governance; CHOICE; sensitivity; CONTRACTS; selection; systems; DESIGN; FIRMS

摘要

We model relative performance evaluation (RPE) when a Chief Executive Officer (CEO) has the power to opportunistically influence the design of RPE by choosing the weight on an index-based peer group or by customizing the selection of peers comprising a peer group. A powerful CEO compares the benefits of reducing common risk affecting his compensation with the benefits of receiving a higher bonus by economizing on expected peer-group performance. As a consequence, the Board of Directors (BoD) is less likely to use RPE. Our analytical model yields hypotheses predicting that powerful CEOs choose to reduce common risk only partially and that BoDs choose to not implement RPE if expected peer performance is sufficiently high. Our model has further empirical implications in (i) providing new interpretations of tests for detecting strong-form and weak-form RPE in the presence of powerful CEOs, and (ii) suggesting a new empirical measure of CEO power with a focus on the delegation of RPE decision rights.