Executive target bonuses and what they imply about performance standards

• 成果类型: Article
• 署名作者: Indjejikian, RJ; Nanda, D
• 署名单位: University of Michigan System; University of Michigan; Duke University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.2002.77.4.793
• 发表日期: 2002
• 页码: 793-819
• 关键词: additional evidence; COMPENSATION; schemes

摘要

We provide evidence that CEOs' and lower-level business unit executives' target bonuses are negatively associated with a proxy for measurement noise in accounting-based performance measures, and positively associated with proxies for firms' growth opportunities and the extent of executives' decision-making authority. Non-CEO executives' target bonuses are also positively associated with their CEO's target bonus. In addition, we compare executives' actual and target bonuses over two consecutive periods to draw inferences about how firms revise executives' performance standards. If firms adjust performance standards to fully reflect executives' past performance, then we expect an executive's chances of earning an above-target bonus to be independent of his past performance. We find evidence to the contrary; an executive is more likely to receive an above-target bonus if he received an above-target bonus in the prior year than if he did not. This suggests that firms do not adjust standards to fully reflect executives' past performance, consistent with agency-theoretic arguments that a firm can better motivate its executives if it discounts executives' past performance in setting their future compensation.