How Peer Benchmarking Inflates Executive Pay

Lucas and Luna explore how companies use peer-group benchmarking to justify ever-higher executive compensation. Lucas explains the mechanics: firms select a set of 'comparable' companies, then target pay at the 50th or 75th percentile of that group. The twist? Firms cherry-pick peers that pay more, creating a self-perpetuating upward spiral. Luna brings data from a 2025 study by the Institute for Executive Compensation Analysis showing that CEOs at companies using peer benchmarking earn 22% more than those at firms that don't, even after controlling for size and industry. They discuss a concrete case: a mid-cap software company that included five larger tech firms in its peer group, jumping the CEO's target pay by 40% in two years. Lucas also notes how the SEC's 2023 pay-ratio disclosure rule has made these dynamics more visible — but hasn't changed them. The episode closes with practical advice for investors and board members on how to spot aggressive peer selection. #PeerBenchmarking #ExecutivePay #CEOCompensation #PayRatios #CompensationConsultants #SECDisclosure #SayOnPay #CorporateGovernance #BoardsOfDirectors #ProxyStatements #CompensationPhilosophy #MedianPay #TotalCompensation #Careers #Business #Finance #FexingoBusiness #BusinessPodcast Keep every episode free: buymeacoffee.com/fexingo