Contractual Features of Performance-Vested Executive Equity Compensation
Arizona State University (ASU) - School of Accountancy
University of Massachusetts Boston
November 30, 2013
AAA 2012 Management Accounting Section (MAS) Meeting Paper
This paper investigates the determination and the interdependence of the contractual features of performance-vested (p-v) executive equity compensation. We find that the use of market metrics is associated with less volatile returns, good stock performance, and complex businesses. We next show that firms using market metrics are more likely to adopt relative performance evaluation (RPE) and long performance horizons, both of which help to reduce noise in market metrics. Moreover, RPE, the performance horizon, and the number of metrics are interdependent. The findings reveal intricate relations among these features and deepen our understanding of the design of p-v equity compensation.
Number of Pages in PDF File: 51
Keywords: executive compensation, contract design, incentive, performance measurement, relative performance evaluation
JEL Classification: G34, G38, J33working papers series
Date posted: July 27, 2011 ; Last revised: December 3, 2013
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