Incentive compensation when executives can hedge the market: Evidence of relative performance evaluation in the cross section

• 成果类型: Article
• 署名作者: Garvey, G; Milbourn, T
• 署名单位: Washington University (WUSTL); Claremont Colleges; Claremont Graduate University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/1540-6261.00577
• 发表日期: 2003
• 页码: 1557-1581
• 关键词: TRADE-OFF; RISK; CONTRACTS; pay

摘要

Little evidence exists that firms index executive compensation to remove the influence of marketwide factors. We argue that executives can, in principle, replicate such indexation in their private portfolios. In support, we find that market risk has little effect on the use of stock-based pay for the average executive. But executives' ability to undo excessive market risk can be hindered by wealth constraints and inalienability of human capital. We replicate the standard result that there is little relative performance evaluation (RPE) for the average executive, but find strong evidence of RPE for younger executives and executives with less financial wealth.