The Impact of the Use of Cross-Border Compensation Peers: The Case of Canadian Companies Using U.S. Peers

Abstract

CEO compensation in Canada is significantly lower than that in the United States. In this article, we examine the choice of, and impact on Canadian CEO Compensation, using U.S. firms in their compensation peer groups. Using a two-stage model to control for endogeneity, while we find the choice of peers associated with labor market factors, we still find that the use of U.S. peers positively associated with higher Canadian CEO compensation. This finding is after controlling for the traditional determinants of CEO compensation, as well as use of domestic peers. While this result holds for all components of the compensation package, we also find that having U.S. peers is associated with a greater proportion of equity in the compensation package. Our results are robust to various formulations including change models and using an earlier time period when peer disclosure was voluntary.

Upper Echelon Employment: A Review of the Fundamental Questions Related to the Executive Labor Market

“…These market dynamics also have a direct influence on compensation in public firms, as the usage of compensation consultants and relative performance compensation packages have become more institutionalized (Bizjak, Lemmon, & Nguyen, 2011). The use of consultants is to obtain information about the pay practices of peer firms (Murphy & Sandino, 2020), while the ELM is used as a means to select peer groups and set relative performance evaluation targets (Balsam, Fan, Mawani, & Zhang, 2022). Research suggests that peer firms may be chosen to purposefully increase executive compensation (Bizjak et al, 2011), and switching compensation consultants may be used to similarly increase executive compensation (Gao et al, 2015).…”