13 Pages Posted: 18 May 2011
Date Written: April 1, 2011
The executive compensation literature has explored the executive pay-for-performance relation in various contexts and reported mixed findings. As a result, the question of whether executive incentives, and particularly stock options, are effective continues to pose a puzzle to researchers. Gong (JMAR, this issue) uses a long window to examine effectiveness of executive compensation. This note discusses several broad aspects of pay-for-performance studies and their potential manifestation in this line of research and in Gong's study. Specifically, I elaborate on measurement issues and focus on (i) The underlying paradigm: arm’s-length contracting versus managerial power, (ii) The distinction between the pay-for-performance relationship and CEO overpay, (iii) Market efficiency, and (iv) The settling-up problem.
Keywords: Executive, Compensation
JEL Classification: M41
Suggested Citation: Suggested Citation
Weiss, Dan, Testing Effectiveness of Executive Compensation - Discussion (April 1, 2011). Journal of Management Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1844580