CEO equity pay has risen dramatically since 1993, fostering beliefs of increased CEO-shareholder incentive alignment. However, the concurrent rise of “competitive pay policy” (CPP), which benchmarks pay to peers regardless of performance, weakens this link by inversely correlating share grants and stock performance. We document significant recent CPP adoption, particularly after the 2006 rule requiring options expensing. CPP reduces long-term CEO wealth sensitivity to stock prices, despite increasing short-term incentives through greater equity pay. Governance mechanisms fail to address CPP’s misalignment, as boards and proxy advisors encourage CPP. These findings challenge assumptions about rising equity pay automatically strengthening incentive alignment.

Ferrari, Mascia, Kalash, Jain, Stephen F., O'Byrne, Francesco, Reggiani e Shivaram, Rajgopal.. "Competitive Pay Policies in CEO Compensation" Working paper, 2024.

Competitive Pay Policies in CEO Compensation

Mascia Ferrari;Francesco Reggiani;
2024

Abstract

CEO equity pay has risen dramatically since 1993, fostering beliefs of increased CEO-shareholder incentive alignment. However, the concurrent rise of “competitive pay policy” (CPP), which benchmarks pay to peers regardless of performance, weakens this link by inversely correlating share grants and stock performance. We document significant recent CPP adoption, particularly after the 2006 rule requiring options expensing. CPP reduces long-term CEO wealth sensitivity to stock prices, despite increasing short-term incentives through greater equity pay. Governance mechanisms fail to address CPP’s misalignment, as boards and proxy advisors encourage CPP. These findings challenge assumptions about rising equity pay automatically strengthening incentive alignment.
2024
Dicembre
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4407139
Ferrari, Mascia; Jain, Kalash; O'Byrne, Stephen F.; Reggiani, Francesco; Rajgopal., Shivaram
Ferrari, Mascia, Kalash, Jain, Stephen F., O'Byrne, Francesco, Reggiani e Shivaram, Rajgopal.. "Competitive Pay Policies in CEO Compensation" Working paper, 2024.
File in questo prodotto:
File Dimensione Formato  
ssrn-4407139.pdf

Open access

Tipologia: Altro
Dimensione 661.94 kB
Formato Adobe PDF
661.94 kB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1373768
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact