Stock-based incentive contracts and managerial performance: the case of Ralston Purina Company

• 成果类型: Article
• 署名作者: Campbell, CJ; Wasley, CE
• 署名单位: Iowa State University; University of Iowa
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/S0304-405X(98)00050-6
• 发表日期: 1999
• 页码: 195-217
• 关键词: Incentives; Executive compensation; SHARE REPURCHASES; Cost of equity capital; relative performance evaluation

摘要

Under Ralston Purina Company's 1986 incentive contract 14 managers would receive $49.1 million in stock if within ten years the stock price closed above $100 for ten consecutive days. While the contract required a 57.8% increase in stock price, it did not motivate managers to create value because the rare of return required to reach $100 in ten years was substantially less than Ralston's cost of equity capital at the time of the contract's adoption. Barring any action by managers that would substantially change the market's expectations about the firm, reaching the $100 hurdle price would be easy. In fact, managers collected the contract's payoffs within five years despite an industry-adjusted loss of $2.1 billion in shareholder value. (C) 1999 Elsevier Science S.A. All rights reserved.