This paper examines the impact of product market competition on the benchmarking of a CEO’s compensation to their counterparts in peer companies. Using a large sample of US firms, we find a significantly greater effect of CEO pay benchmarking in more-competitive industries than in less-competitive industries. Using three proxies for managerial talent that have been used by Albuquerque, De Franco and Verdi (2013), we find that CEO benchmarking is more pronounced in competitive markets wherein managerial talent is more valuable. This suggests that pay benchmarking and product market competition are complements. The above results are not due to industry homogeneity.
Professor Palia is an internationally renowned scholar in law and economics, banking, and corporate governance. He earned a PhD in Finance from the Stern School of Business at New York University, and he has been on the faculty of Princeton University, Columbia Business School, the University of Chicago, and UCLA. Dr Palia has published extensively in the top finance and economics academic journals and his work is very well cited by other scholars. He is also an Associate Editor of the Journal of Financial and Quantitative Analysis. He is often quoted in newspaper articles and magazines. He continues to be invited to present his research to the faculty of top universities, at the major academic meetings, and at the prestigious National Bureau of Economic Research conferences. He has worked as an expert in both federal and state courts. As Founding Director of the Financial Institutions Center, he organises and participates in panels that include CEOs and other senior executives of financial institutions as well as senior regulators.