Affiliation:
1. University of Missouri
Abstract
ABSTRACT
I investigate the incentives provided by performance-vested stock awards (PVSAs) and the accuracy of ex ante PVSA valuations. In PVSAs, the number of shares awarded to the CEO varies based on how firm performance compares to target performance levels. The incentives provided by PVSAs and their valuations depend on the difficulty of the performance targets, which cannot be easily determined using ex ante disclosures. Using a hand-collected dataset of PVSA outcomes, I find that target difficulty is such that CEOs have incentives to earn additional shares from improved firm performance in 75 percent of PVSAs. In contrast, findings in prior studies using methodologies that rely on comparisons of PVSA targets to similarly named financial statement metrics suggest only 12 percent of awards provide such incentives. I further find that, on average, PVSAs pay out 115 percent of shares disclosed in ex ante valuations, suggesting the valuations of awards are understated.
Data Availability: Data are available from sources cited in the text. PVSA outcome data are available upon request from the author.
JEL Classifications: G34; J33; M12.
Publisher
American Accounting Association
Subject
Economics and Econometrics,Finance,Accounting
Reference28 articles.
1. Abernethy,
M. A.,
Kuang
Y. F.,
and
QinB.
2015.
The influence of CEO power on compensation contract design.
The Accounting Review90 (
4):
1265–
1306.
https://doi.org/10.2308/accr-50971
2. Aggarwal,
R. K.,
and
SamwickA. A.
1999.
Executive compensation, strategic competition, and relative performance evaluation: Theory and evidence.
Journal of Finance54 (
6):
1999–
2043.
https://doi.org/10.1111/0022-1082.00180
3. Bettis,
J. C.,
Bizjak
J.,
Coles
J.,
and
KalpathyS.
2010.
Stock and option grants with performance-based vesting provisions.
Review of Financial Studies23 (
10):
3849–
3888.
https://doi.org/10.1093/rfs/hhq060
4. Bettis,
J. C.,
Bizjak
J.,
Coles
J. L.,
and
KalpathyS.
2018.
Performance-vesting provisions in executive compensation.
Journal of Accounting and Economics66 (
1):
194–
221.
https://doi.org/10.1016/j.jacceco.2018.05.001
5. Black,
D. E.,
Black
E. L.,
Christensen
T. E.,
and
GeeK. H.
2020.
The use of non-GAAP EPS for compensation contracting and financial reporting.
Available at: https://ssrn.com/abstract=2343140
Cited by
5 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献