Relative Performance Evaluation in CEO Compensation: A Talent-Retention Explanation

Relative Performance Evaluation in CEO Compensation: A Talent-Retention Explanation

David De Angelis, Yaniv Grinstein

Series number :

Serial Number: 
615/2019

Date posted :

July 15 2019

Last revised :

July 13 2019
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Keywords

  • CEO compensation • 
  • relative performance evaluation

Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First, we examine the RPE terms in compensation contracts and document features that are consistent with retention motives.

Second, using a novel empirical specification for detecting RPE, we find RPE is less prevalent when CEO talent is less transferrable: among specialist CEOs, founder CEOs, and retirement-age CEOs, as well as in industries and states where the market for CEO talent is more restrictive.

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Authors

Real name:
David De Angelis