Why Have CEO Pay Levels Become Less Diverse?

Why Have CEO Pay Levels Become Less Diverse?

Torsten Jochem, Gaizka Ormazabal, Anjana Rajamani

Series number :

Serial Number: 

Date posted :

October 30 2020

Last revised :

November 10 2020
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  • Clustering of Executive Pay • 
  • Pay Diversity • 
  • Competitive Bench-Marking • 
  • Pay Transparency • 
  • Pay Disclosure • 
  • Tournament Incentives

We document that, over the last decade, the cross-sectional variation in CEO pay levels has declined precipitously, both at the economy level and within industry and industry-size groups.

We find evidence consistent with one potential explanation for this pattern; reciprocal benchmarking (i.e., firms are more likely to include each other in the disclosed set of peers used to benchmark pay levels). We also find empirical support for three factors contributing to the increase in reciprocal benchmarking; the mandatory disclosure of compensation peer groups, say on pay, and proxy advisory influence. Finally, we find that reciprocal benchmarking has meaningful consequences on managerial behavior; it reduces risk-taking by weakening external tournament incentives.


Real name:
Academic Member
University of Amsterdam, Finance Group
Real name:
Academic Member
Erasmus University, Rotterdam School of Management