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Executive Compensation Incentives Contingent on Long-Term Accounting Performance

Zhi Li^1,2,3; Lingling Wang^1,2,3

¹ United States Securities and Exchange Commission · ² The Ohio State University · ³ Case Western Reserve University

The percentage of S&P 500 firms using multiyear accounting-based performance (MAP) incentives for CEOs increased from 16.5% in 1996 to 43.3% in 2008. The use and design of MAP incentives depend on the signal quality of accounting versus stock performance, shareholder horizons, strategic imperatives, and board independence. After the technology bubble, option expensing, and the publicity of option backdating, firms increasingly use stock-based MAP plans to replace options, resulting in changes in pay structure, but not in pay level. While firms respond to the evolving contracting environment, they consider firm characteristics and shareholder preferences and do not blindly follow the trend. Received September 20, 2013; accepted November 20, 2015 by Editor David Denis.

DOI

10.1093/rfs/hhw011

Volume

29 (6)

Pages

1586-1633

Language

en

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