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Why CEOs Should Keep Up with the Kardashians, Not the Joneses
- July 10, 2018
- CBR - Accounting
The Equation: Rewarding CEOs who emulate superstars
These portfolios, however, didn’t differentiate between competitive and aspirational peers, so the researchers noted which companies named each other as peers and which named as a peer another company that did not reciprocate. One-way relationships indicate aspirational peers, they claim, and these peers may be bigger and in a different line of business than the selecting company.
Ball, Bonham, and Hemmer tracked the correlation in peer companies’ equity value over time, arguing that doing so can indicate whether management is pursuing strategies mimicking those of aspirational peers. Making 7,039 such market observations between 2007 and 2014, the researchers find that a given CEO’s compensation did not rise or fall based on the correlation of performance with that of aspirational peers. The research provides a more complete picture of how businesses evaluate and compensate executives. “Many people compete with their neighbors to keep up with the Joneses, but also aspire to keep up with the Kardashians,” Ball, Bonham, and Hemmer point out—and they say the same goes for companies.
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