PORAC, Joseph F <br/><br/>
Industry categories and the politics of the comparable firm in CEO compensation 

 - Ithaca :  Johnson Graduate School of Management,  March 1999 
<br/><br/> We examine the blending of inforamtiona and political forces in organization categorizations in the context of chief executive officer (CEO) compensation. By law, corporate boards are required to provide shareholders with annual justifications for their CEO pay allocations that contain an explicit performance comparison with a set of peer companies that are selected by the board. We collected and and analyzed information on the industry membership of chosen peers from a 1993 sample of 280 members of the Standard and Poor`s (S&P) 500  Our results suggest that boards anchor their comparability  judgements within a firm`s primary industry, thus supporting  the argument that board`s peer definitions center around commonsense industry categories. At the same time, however, we found that boards selectively define peers in self-protective ways, such that peer definitions are expanded beyond industry boundaries when firms performa poorly, industries perform well, CEOs are paid perform poorly, industries perform well, CEOs are paid highly, and when shareholders are powerful and active