In the ongoing debate over the size of executive compensation packages, a key determinant of CEO pay has become increasingly controversial: peer groupingthe process by which boards of directors set the CEOs salary by benchmarking it against those at other companies.
What, then, if boards were to (almost) abolish peer grouping altogether? Thats the argument in a new study by Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, and Craig Ferrere, a fellow at the center. Simply put, peer group comparisons and median targeting are central parts of todays mega-pay machine. Any executive compensation reform must start there, they write in Executive Superstars, Peer Groups and Over-CompensationCause, Effect and Solution [PDF].
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