[This paper tests two alternative hypotheses about why different firms choose different accounting measures of performance when determining executive compensation. The two measures of performance examined are accounting profits after income taxes and accounting profits before income taxes. Empirical evidence weakly suggests that the greater the degree to a firm is multinational, the more likely it is to use bonus plans that reward the manager on the basis of after-tax profits, as opposed to before-tax profits. The empirical evidence also suggests that the more capital intensive a firm is, the more likely it is to use bonus plans that reward the manager on the basis of after-tax profits.]

This paper tests two alternative hypotheses about why different firms choose different accounting measures of performance when determining executive compensation. The two measures of performance examined are accounting profits after income taxes and accounting profits before income taxes. Empirical evidence weakly suggests that the greater the degree to a firm is multinational, the more likely it is to use bonus plans that reward the manager on the basis of after-tax profits, as opposed to before-tax profits. The empirical evidence also suggests that the more capital intensive a firm is, the more likely it is to use bonus plans that reward the manager on the basis of after-tax profits.

Certain characteristics of managerial employment arrangements and of the managerial labor market make shareholder wealth dependent on an executive's continued employment. These wealth effects are investigated by examining the common stock price reaction to unexpected deaths of senior corporate executives. Abnormal stock price changes are documented for a sample of fifty-three events. These abnormal stock price changes are associated with the executive's status as a corporate founder and with measures of the executive's ‘talents’ and decision-making responsibility, and of the transaction costs associated with renegotiating or terminating the employment agreement.