Why Have CEO Pay Levels Become Less Diverse?

This paper documents a new stylized fact; the cross-sectional variation in CEO pay levels has declined precipitously in recent years. We offer one explanation for this secular decrease in pay variation: firms are increasingly benchmarking CEO compensation to the industry peers closest in size. Our empirical tests provide support for this explanation and suggest that the rise of industry-size benchmarking is driven by the combination of three institutional factors; the mandatory disclosure of compensation peer groups, proxy advisory influence and say on pay regulation. Further, conformity with industry-size benchmarking is stronger among firms with greater passive ownership.