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 :

April 28 2021
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  • Variation in executive pay • 
  • Pay Diversity • 
  • compensation benchmarking • 
  • pay transparency • 
  • Pay Disclosure • 
  • Tournament Incentives

We document that the cross-sectional variation in CEO pay levels has declined precipitously, both at the economy level and within industry and size groups. We find evidence consistent with one explanation; reciprocal benchmarking (i.e., firms including each other in the set of peers used to benchmark pay).

We find support for three factors contributing to the rise 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 economic consequences; lower external tournament incentives, lower risk-taking, lower stock performance, and higher stock return synchronicity within industries.


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