Cost shielding in executive bonus plans

• 成果类型: Article
• 署名作者: Bloomfield, Matthew; Gipper, Brandon; Kepler, John D.; Tsui, David
• 署名单位: University of Pennsylvania; Stanford University; University of Southern California
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2021.101428
• 发表日期: 2021
• 关键词: performance-measures; incentive contracts; ceo compensation; capital-markets; management; earnings; price; DISCRETION; turnover; MODEL

摘要

Executive bonus plans often incorporate performance measures that exclude particular costsda practice we refer to as cost shielding. We predict that boards use cost shielding to mitigate underinvestment and insulate new managers from the costs of prior execu-tives' decisions. We find evidence that boards use cost shielding to deter underinvestment in intangibles and encourage managers to take advantage of growth opportunities. We also find that cost shielding tends to be elevated for newly-hired executives, and decreases over tenure. Collectively, our results suggest that boards deliberately choose performance metrics that alleviate agency conflicts. (c) 2021 Elsevier B.V. All rights reserved.