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Performance peer groups in CEO compensation contracts
Author(s) -
Bakke TorErik,
Mahmudi Hamed,
Newton Ashley
Publication year - 2020
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12296
Subject(s) - chief executive officer , compensation (psychology) , business , officer , executive compensation , affect (linguistics) , accounting , microeconomics , psychology , social psychology , economics , management , law , communication , political science
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.