We construct a new index of CEO general managerial skill using the industry composition of the CEO compensation peer group and use it to examine the relation between CEO general skill and CEO pay. Our index has the advantage of capturing the board’s perception of CEO general skill and is less subject to concerns for confounding factors than existing measures based on lifetime work experience. Using our index, we find that the board does set a higher pay benchmark for generalist CEOs than specialist CEOs, however, the premium is not large enough to significantly increase CEO total pay. To validate our index, we provide evidence that industry composition of peer groups contains information about a CEO’s general skill and our index performs better and is less affected by CEO power and other confounding factors in capturing general skill than the existing measure. Overall, our evidence supports the existence of a pay premium for generalist CEOs but we find its effect on CEO total pay to be too small to explain the rise in executive compensation over the past decades.

Keywords: Executive Compensation, Compensation Peer Group, Board of Directors