Cash versus Share Payouts in Relative Performance Plans

• 成果类型: Article
• 署名作者: Timmermans, Oscar
• 署名单位: University of London; London School Economics & Political Science
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2022-0167
• 发表日期: 2024
• 页码: 451-489
• 关键词: executive stock-options; institutional investors; ceo compensation; AGENCY COSTS; RISK; incentives; MARKET; OWNERSHIP; portfolio; earnings

摘要

This study examines the risk taking properties associated with incentive plans that use relative performance evaluation, with a focus on the form of payout, whether in cash or shares. By analyzing determinants and consequences of payout form choice, I find that share-based plans offer risk-averse managers weaker incentives to pursue projects with idiosyncratic risk compared with cash plans. This occurs because share plans-unlike cash plans-expose managers to systematic performance trends, as payout values are linked to stock prices. Additionally, I document that the variation in risk taking incentives depends on expected relative performance and the strength of the incentives. Overall, this study's findings suggest that commonly used share-based relative performance plans might not always motivate managers to pursue innovative projects with high idiosyncratic risk when projects with systematic risk are available.