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http://ssrn.com/abstract=1332157
 
 

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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

January 23, 2009

Review of Accounting Studies, Vol. 14, No. 2-3, 2009

Abstract:     
Using data from FTSE 350 firms, we examine factors influencing explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide exploratory evidence on whether the use or characteristics of RPE are associated with efforts to improve incentives by removing common risk, other economic factors discussed in the RPE literature, or external pressure to implement RPE. We find that many of these economic factors, including common risk reduction, are more closely related to specific relative performance conditions than to the firm-level decision to use RPE in some or all of their equity grants. We also find that greater external monitoring by institutional investors or others is associated with plans with more stringent overall RPE 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. And, we find evidence that vesting percentages vary in RPE and non-RPE plans.

Number of Pages in PDF File: 53

Keywords: Compensation, equity incentives, relative performance, corporate governance

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

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Date posted: January 24, 2009  

Suggested Citation

Carter, Mary Ellen and Ittner, Christopher D. and Zechman, Sarah L. C., Explicit Relative Performance Evaluation in Performance-Vested Equity Grants (January 23, 2009). Review of Accounting Studies, Vol. 14, No. 2-3, 2009. Available at SSRN: http://ssrn.com/abstract=1332157

Contact Information

Mary Ellen Carter
Boston College - Department of Accounting ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
Christopher D. Ittner (Contact Author)
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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