Abstract

http://ssrn.com/abstract=1001467
 
 

References (49)



 
 

Citations (14)



 


 



Explicit Relative Performance Evaluation in Performance-Vested Equity Grants


Mary Ellen Carter


Boston College - Department of Accounting

Christopher D. Ittner


University of Pennsylvania - Accounting Department

Sarah L. C. Zechman


University of Chicago - Booth School of Business

May 1, 2008


Abstract:     
Using data from FTSE 350 firms, we examine the factors influencing the explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide evidence on the use of RPE either to improve incentives by removing common risk or by linking greater vesting percentages to higher relative performance rankings. We also investigate whether RPE is used to opportunistically increase vesting and/or placate external parties calling for its use. We find that specific RPE conditions vary depending upon whether the plan is used to remove common risk or to promote superior relative performance. However, we find no evidence that greater external monitoring by institutional investors or others is associated with specific RPE performance conditions. The relative performance conditions are binding in most RPE plans, with nearly two-thirds of the grants vesting only partially or not vesting at all. However, we find no evidence that vesting percentages are higher in RPE plans than in non-RPE plans, and no evidence that RPE is used opportunistically to increase vesting and compensation.

Number of Pages in PDF File: 46

Keywords: Executive compensation, relative performance evaluation, equity grants

JEL Classification: G34, J33, M40, M41, M46, M52

working papers series


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Date posted: July 18, 2007 ; Last revised: November 20, 2011

Suggested Citation

Carter, Mary Ellen and Ittner, Christopher D. and Zechman, Sarah L. C., Explicit Relative Performance Evaluation in Performance-Vested Equity Grants (May 1, 2008). Available at SSRN: http://ssrn.com/abstract=1001467 or http://dx.doi.org/10.2139/ssrn.1001467

Contact Information

Mary Ellen Carter (Contact Author)
Boston College - Department of Accounting ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
Christopher D. Ittner
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7786 (Phone)
215-573-2054 (Fax)

Sarah L. C. Zechman
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773)702-7136 (Phone)
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References:  49
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