Abstract
This paper explores the relationship between Accounting-Based Relative Performance Evaluation (RPE) and CEO compensation within the context of corporate governance. The theoretical foundations for RPE are agency theory, economic theory, and stakeholder theory, and the study explores the complexities of CEO compensation, incorporating frameworks like agency theory, tournament theory, and human capital theory. Employing a qualitative descriptive approach, the paper analyzes existing literature to unravel the applications, benefits, and challenges of RPE in CEO compensation. The results and discussion section scrutinizes the RPE process, emphasizing peer benchmarking, defining performance metrics, quantifying relative performance, adjusting for external factors, and incorporating risk and effort sharing. Accounting-Based RPE emerges as a critical subset, offering financial alignment, objective performance metrics, and a shareholder value focus. The paper acknowledges challenges, including data accuracy, comparability issues, and concerns about short-termism. Furthermore, it underscores the integral role of corporate governance in shaping the impact of RPE on CEO compensation.
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