Governance structure and the weighting of performance measures in CEO compensation

• 成果类型: Article
• 署名作者: Davila, Antonio; Penalva, Fernando
• 署名单位: University of Navarra; IESE Business School; Stanford University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-006-9018-8
• 发表日期: 2006
• 页码: 463-493
• 关键词: free cash flow; corporate governance; STOCK; management; DIRECTORS; earnings; price; INFORMATION; OWNERSHIP; CONTRACTS

摘要

We empirically examine how governance structure affects the design of executive compensation contracts and in particular, the implicit weights of firm performance measures in CEO's compensation. We find that compensation contracts in firms with higher takeover protection and where the CEO has more influence on governance decisions put more weight on accounting-based measures of performance (return on assets) compared to stock-based performance measures (market returns). In additional tests, we further find that CEO compensation in these firms has lower variance and a higher proportion of cash (versus stock-based) compensation. We further find that CEOs' incentives (measured as changes in CEO annual wealth which includes expected changes in the value of the CEO's equity holdings in addition to yearly compensation) do not vary across governance structures. These findings are consistent with CEOs in firms with high takeover protection and where they have more influence on governance negotiating different contracts.