Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking

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  • Date/Time:
    • Thursday September 15, 2011
      11:00 am - 12:00 pm
  • Location: IC 205
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Summary Sentence: Is Disclosure an Effective Cleansing Mechanism? The Dynamics of Compensation Peer Benchmarking

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TITLE:  Is Disclosure an Effective Cleansing Mechanism? The Dynamics of
Compensation Peer Benchmarking

SPEAKER:  Professor Jun Yang

ABSTRACT:

It has become a regular practice for firms to justify their CEO compensation by referring to a group of companies with highly paid CEOs, claiming they compete for managerial talent with those selected peer companies. This paper examines the dynamics of the peer benchmarking process, addressing whether the 2006 regulatory requirement of disclosing compensation peers has cast sunshine on the practice and thus mitigated firms' opportunistic behavior of benchmarking CEO compensation against a group of self-selected, highly-paid peer CEOs (Faulkender and Yang, 2010; Bizjak, Lemmon, and Nguyen, 2011). Our evidence shows the manipulation of the benchmarking process did not stop after disclosure became mandatory in 2006. It actually became more severe at firms that received substantial shareholder complaints about their compensation practices, and at firms with low institutional ownership, busy Boards of Directors, and large Boards of Directors. These findings call into question the ability of mere disclosure to remedy potential abuses in determining executive compensation.

Bio:
Jun Yang has been an Assistant Professor of Finance at Kelley School of Business, Indiana University since 2005. Jun's research interest is in the areas of Financial Contracting,  Corporate Governance, and Executive Compensation. Jun has publications at top quality journals such as Journal of Financial Economics, Review of Financial Studies, Management
Science, Journal of Economic Theory, and Production and Operations Management. Jun received her Ph.D. in Finance from Washington University in Saint Louis in 2005, and Ph.D. in Operations Management from The Chinese University of Hong Kong in 1997. Her M.Sc. and B.Sc. (summa cum laude) are from Tsinghua University in China.

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H. Milton Stewart School of Industrial and Systems Engineering (ISYE)

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Status
  • Created By: Anita Race
  • Workflow Status: Published
  • Created On: Sep 8, 2011 - 11:06am
  • Last Updated: Oct 7, 2016 - 9:55pm