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    Recursive relationships in executive compensation

    Moriarity, Shane; San Diego, Jojo

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    Date
    2009
    Citation:
    Moriarity, S., and San Diego, J. (2009). Recursive relationships in executive compensation. Paper presented at the Managing Asian Business Corporations in the 21st Century. In A. Harun, R. Mohidin, L. Beatrice, R. Mahmud, & D. Eranza (Eds.), The 4th International Conference of the Asian Academy of Applied Business. Manila, Philippines. 17-18 December.
    Permanent link to Research Bank record:
    https://hdl.handle.net/10652/2145
    Abstract
    Asian businesses in the 21st century will learn from the experience of their US counterparts in promoting better governance of executive compensation in publicly traded companies. In this paper we examine the membership of the compensation peer groups for 121 of the largest US-headquartered, publicly-traded firms. We find that the existence of self-reinforcing recursive relationships through peer groups is pervasive. We illustrate that the effects from these relationships could be very large. Finally, we measure the association between the size of a firm’s recursive effect and that firm’s average compensation for named executives. The association is large, positive, and statistically significant. Thus our findings suggest that recursive relationships arising from the widespread use of peer-group benchmarking is affecting executive compensation levels for many large US firms. These findings should alert Asian businesses to the effect that the practice of peer-group benchmarking may have on executive compensation.
    Keywords:
    Recursive effects, executive compensation, compensation levels
    ANZSRC Field of Research:
    150305 Human Resources Management
    Copyright Holder:
    Authors
    Rights:
    This digital work is protected by copyright. It may be consulted by you, provided you comply with the provisions of the Act and the following conditions of use: Any use you make of these documents or images must be for research or private study purposes only, and you may not make them available to any other person. You will recognise the author's and publishers rights and give due acknowledgement where appropriate.
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