Pay Harmony: Peer Comparison and Executive Compensation

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-06-19


Editor's Note: The following post comes to us from Claudine Gartenberg of the Department of Management and Organizations at New York University and Julie Wulf of the Strategy Unit at Harvard Business School.

In our paper, Pay Harmony: Peer Comparison and Executive Compensation, which was recently made publicly available on SSRN, we find evidence consistent with the presence of peer comparison influencing pay policies for executives inside firms. Our underlying approach is to measure changes in pay co-movement, disparity and productivity using a 1992 SEC ruling that mandated greater disclosure of top executive pay. We argue that this ruling led to greater awareness of pay and, hence, greater peer comparison throughout all managerial ranks, particularly in non-proximate managers who had natural information barriers prior to the ruling.

We present the results of three analyses that, taken together, support the argument that firms’ pay policies respond to peer comparison and concerns about internal equity. In general, we find evidence that pay variance within firms, pay distance between managers and division productivity all increased during this period. However, we find that these measures increased less among firms and managers that were more affected by the 1992 SEC disclosure rule. Specifically, after the new regulation, we find increases in PRS (pay-referent sensitivity)—or greater co-movement of division manager pay—and decreases in PPS (pay-performance sensitivity) in geographically-dispersed firms, but not in concentrated firms.

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From feeds: Aggregation Hub » The Harvard Law School Forum on Corporate Governance and Financial Regulation


academic research accounting & disclosure executive compensation julie wulf pay for performance management peer groups compensation disclosure claudine gartenberg compliance and disclosure interpretation


R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation,

Date tagged:

06/19/2013, 16:20

Date published:

06/19/2013, 09:27