Pay for the Right Performance
David De Angelis
Rice University - Jesse H. Jones Graduate School of Business
Cornell University - Samuel Curtis Johnson Graduate School of Management
August 17, 2012
Johnson School Research Paper Series No. 03-2011
In December 2006, the Securities and Exchange Commission issued new rules that require enhanced disclosure on how firms tie CEO compensation to performance. We use this new available data to study the terms of performance-based awards in CEO compensation contracts in S&P 500 firms. We observe large variations in the choice of performance measures and horizons. Our evidence is consistent with predictions from optimal contracting theories: firms rely on performance measures that are more informative of CEO actions. Furthermore, our results do not support the argument that entrenched CEOs rig the contractual terms toward performance measures that are easier to manipulate.
Number of Pages in PDF File: 58
Keywords: CEO Compensation, Market-based Performance Measure, Accounting-based Performance Measure, Performance Horizon
JEL Classification: G34, G38, J33working papers series
Date posted: March 23, 2010 ; Last revised: August 20, 2012
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