When deciding on CEOs’ salary, boards often pay according to how much their counterparts are earning in similar countries, according to a recent study.
The study, which was released at the recent First Singapore International Conference on Finance, said that such practices had significant impact on the remuneration of CEOs, especially those whose pay was below the industry average – leading to pay increases that are not tied with executive performance.
However, in the same study Does the use of peer groups contribute to higher pay and less efficient compensation?, the authors wrote that benchmarking may be an efficient way to determine how much a company needed to pay its chief executive.
The authors also remained open to the fact that benchmarking may have led to greater increase than it would have in its absence, adding that “an interesting question for future research is whether there are more economically efficient ways to gather information to set pay.”
