Benchmarking of Pay Components in CEO Compensation Design

We document an important element of CEO compensation design – benchmarking of the pay components. Analyzing a panel of CEO compensation data entailing 1,451 S&P 1500 firms during 2006-2019, we find that: 1) Component-of-pay benchmarking more effectively explains CEO compensation design than does total compensation benchmarking; 2) Most pay components exhibit similar benchmarking behavior; the only exception is the milder adjustment of salary to that of peers; 3) Benchmarking of the weight of each component in total compensation is also apparent. Our results suggest that benchmarking of pay components is an economically fundamental part of CEO compensation design.