Non-Price and Price Performance Vesting Provisions and CEO Incentives

• 成果类型: Article
• 署名作者: Core, John E.; Packard, Heidi A.
• 署名单位: Massachusetts Institute of Technology (MIT); University of Michigan System; University of Michigan
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2019-0527
• 发表日期: 2022
• 页码: 109-134
• 关键词: institutional investors; corporate governance; ACCOUNTING EARNINGS; COMPENSATION; determinants

摘要

A large body of empirical work provides mixed support for the central prediction from agency theory that noisier performance measures receive less weight in incentive contracts. We develop a method to calculate price-based and non-price-based performance measure weights using CEO pay and holdings of stock, options, and performance-vested awards. Consistent with theory, we find that noisier performance measures receive less weight. We find that this negative relation strengthened following the adoption of ASC 718 (formerly SFAS 123R), which equalized the accounting treatment for options and other share-based awards. We further find that firms that increased non-price incentives for CEOs realized improvements in ROA and in Tobin's Q. Our results suggest that misaligned incentives prior to ASC 718, and the under-weighting of non-price measures in particular, negatively affected firm performance.