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We investigate how M&A activities influence CEO compensation and the dynamics of peer groups.

May 10, 2026

Keeping Up With the Joneses: Spillover Effect of M&A Activity to Compensation

Key Points

We investigate how M&A activities influence CEO compensation and the dynamics of peer groups.
Identified the spillover effect of M&A on CEO compensation for non-participating CEOs.
Analyzed the changes in pay and pay-performance sensitivity among compensation peers.
Explored the role of market pressures and self-dealing in shaping compensation dynamics.
CEOs linked to peers involved in M&A experienced increased pay and reduced sensitivity to negative performance.
M&A activity altered the composition of the peer compensation group significantly.
The rise in CEO compensation is partly explained by these spillover effects and labor market dynamics.

Abstract

ABSTRACT We identify a spillover effect from Mergers and Acquisitions (M&A) activity to CEO compensation. Previous research shows that post‐merger, acquiring CEOs receive higher pay with reduced sensitivity to negative performance. We demonstrate that CEOs who don't engage in M&A, but have compensation peers who do, also experience increased pay and decreased pay‐performance sensitivity for negative returns. Additionally, M&A activity significantly influences compensation peer group composition. Our results reveal the effect of peer M&A on compensation results from both labour market pressures and self‐dealing, contributing to explanations for the substantial rise in CEO compensation in recent decades.

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