ABSTRACT A large body of empirical work provides mixed support for the central prediction from agency theory that noisier performance measures receive less weight in incentive contracts. We develop a method to calculate price-based and non-price-based performance measure weights using CEO pay and holdings of stock, options, and performance-vested awards. Consistent with theory, we find that noisier performance measures receive less weight. We find that this negative relation strengthened following the adoption of ASC 718 (formerly SFAS 123R), which equalized the accounting treatment for options and other share-based awards. We further find that firms that increased non-price incentives for CEOs realized improvements in ROA and in Tobin's Q. Our results suggest that misaligned incentives prior to ASC 718, and the under-weighting of non-price measures in particular, negatively affected firm performance. JEL Classifications: G30; J33; M12; M52.

ABSTRACT This paper examines voluntary disclosure in the context of shareholder scrutiny of executive compensation contracts. We find that firms voluntarily increase discussion of their performance within their CD&A disclosures when peer-benchmarked compensation relative to performance is high. In contrast, we do not find a similar increase in performance discussion in the corresponding MD&A disclosures, which suggests that the effect is not driven by firms’ general disclosure practices. We also find that the relation between relatively high compensation and CD&A performance disclosure strengthens following the implementation of mandatory Say-on-Pay, which increased costs associated with investor criticism of pay. These disclosures appear to be used effectively to avoid negative compensation assessments, in that they are associated with higher levels of shareholder and proxy advisor approval. Altogether, our findings suggest that CD&A performance disclosures allow firms to communicate the context of their compensation choices to improve shareholder opinions of pay. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: D22; J33; M41.