Recent News: Emerging trends in executive compensation: Compensation benchmarking.

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Compensation benchmarking is the phenomenon of benchmarking a firm’s executive pay to that of the peer firms. In recent times, the practice of compensation benchmarking has gained a lot of traction. As a result, researchers are increasingly addressing the dynamics of compensation benchmarking among the firms.

Compensation benchmarking is the phenomenon of benchmarking a firm’s executive pay to that of the peer firms. In recent times, the practice of compensation benchmarking has gained a lot of traction. As a result, researchers are increasingly addressing the dynamics of compensation benchmarking among the firms.

There are two competing potential theories to explain compensation benchmarking. Suggested that compensation benchmarking is a feature of an efficient executive labor market. The executive compensation is determined by the supply and demand and hence benchmarked compensation is just the reflection of the market price. However, suggest that there is a potential problem at play. The executives are entrenched and powerful to influence the selection of the peer firms leading to selection of only those peer firms who offer best pay packages. So the benchmarked compensation is not a reflection of the market price, but is a result of the entrenched manager’s powers to inflate their own salary. Differentiating between these two competing theories and determining the proper nature of the dynamics of compensation benchmarking is an interesting, yet relatively unresolved puzzle.

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Robert,
Editorial Manager,
Journal of Finance and Marketing,
Email: finance@alliedsciences.org