Stock-Based Incentives: Design and Implications for Firm Performance

“Highly Commended” Award at the 7th International Conference on Corporate Governance at Birmingham Business School in June 2009

36 Pages Posted: 18 Feb 2009 Last revised: 12 Jan 2011

See all articles by Marc Steffen Rapp

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Philipp Schaller

Technische Universität München - Center for Entrepreneurial and Financial Studies

Michael Wolff

University of Göttingen

Date Written: May 31, 2009

Abstract

We examine performance implications of stock-based incentive programs. While agency theory makes a strong case for stock-based incentives, empirical evidence of the effect on firm performance so far is mixed. Using a novel hand-collected data-set of German Prime Standard firms, we also find that on average stock-based long-term incentives do not improve firm performance. However, when we take a closer look at the design of the incentive structures, we find that ill-designed programs go along with poor post performance, while ambitious programs boosts firm performance. We confirm these findings by using different performance measures, addressing endogenity concerns, and controlling for various governance mechanisms like ownership and board structures, as well as other design dimensions of the stock-based incentive plans.

Keywords: Incentives, management compensation, stock-based compensation, corporate governance

Suggested Citation

Rapp, Marc Steffen and Schaller, Philipp and Wolff, Michael, Stock-Based Incentives: Design and Implications for Firm Performance (May 31, 2009). “Highly Commended” Award at the 7th International Conference on Corporate Governance at Birmingham Business School in June 2009. Available at SSRN: https://ssrn.com/abstract=1344629

Marc Steffen Rapp (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Philipp Schaller

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, 80333
Germany
+49 (0)89 289 25440 (Phone)

Michael Wolff

University of Göttingen ( email )

Platz der Göttinger Sieben 3
Göttingen, DE 37073
Germany

HOME PAGE: http://www.contolling.uni-goettingen.de

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