What is it about?
This article examines how firms use benchmarking information about peers to determine the compensation that they offer to chief executive officers (CEOs). Peer benchmarking may motivate CEOs to restore pay equity among the peers, but this reaction to pay inequity is effective only when the CEOs have power over the board of directors to influence the pay-setting process. An analysis of CEO compensation data from S&P 1500 firms support the argument.
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Why is it important?
This article integrates pay equity concerns and managerial power perspective to explain the effect of compensation benchmarking. Competitive benchmarking for top executives has been controversial because of its potential abuse by powerful CEOs. This criticism is often based solely on a managerial power perspective. By considering both pay equity and CEO power, this study shows that only powerful CEOs can react to pay inequity by promoting upward pay adjustments when they are underpaid compared to the peers and by avoiding downward adjustments when overpaid.
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This page is a summary of: Fair Pay or Power Play? Pay Equity, Managerial Power, and Compensation Adjustments for CEOs, Journal of Management, March 2013, SAGE Publications,
DOI: 10.1177/0149206313478186.
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