Relative Performance Evaluation and Related Peer Groups in Executive Compensation Contracts

• 成果类型: Article
• 署名作者: Gong, Guojin; Li, Laura Yue; Shin, Jae Yong
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; University of Illinois System; University of Illinois Urbana-Champaign; Seoul National University (SNU)
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.00000042
• 发表日期: 2011
• 页码: 1007-1043
• 关键词: incentive compensation; empirical-analysis; ceo compensation; tournaments; COMPETITION; prizes; MARKET; luck; pay

摘要

This study examines the explicit use of relative performance evaluation (RPE) in executive compensation contracts and the selection of RPE peers. Using S&P 1500 firms' first proxy disclosures under the SEC's 2006 executive compensation disclosure rules, we find that about 25 percent of our sample firms explicitly use RPE in setting executive compensation. We demonstrate that a lack of knowledge of both actual peer-group composition and the link between RPE-based performance targets and future peer performance significantly hinder the traditional implicit test from detecting RPE use. We also find that firms consider both costs and benefits of RPE as an incentive mechanism when deciding to use RPE. Finally, both efficient contracting and rent extraction considerations influence RPE peer selection, with the relative importance of these competing considerations depending on RPE firms' performance.