Executive Compensation Incentives Contingent on Long-Term Accounting Performance

59 Pages Posted: 14 Mar 2012 Last revised: 30 Oct 2015

See all articles by Zhi Li

Zhi Li

Chapman University - The George L. Argyros School of Business & Economics

Lingling Wang

University of Connecticut - Department of Finance

Date Written: Octber 1, 2015

Abstract

The percentage of S&P 500 firms using multi-year accounting-based performance (MAP) incentives to CEOs increased from 16.5% in 1996 to 43.3% in 2008. The use and design of MAP incentives depend on the signal quality of accounting vs. stock performance, shareholder horizons, strategic imperatives, and board independence. After the technology bubble, option expensing, and the publicity of option backdating, firms increasingly use stock-based MAP plans to replace options, resulting in changes in pay structure but not pay level. While firms respond to the evolving contracting environment, they consider firm characteristics and shareholder preferences and do not blindly follow the trend.

Keywords: Long-term incentive, accounting-based performance plan, CEO compensation

JEL Classification: M12, J33, G32, M41

Suggested Citation

Li, Zhi and Wang, Lingling, Executive Compensation Incentives Contingent on Long-Term Accounting Performance (Octber 1, 2015). Available at SSRN: https://ssrn.com/abstract=2021384 or http://dx.doi.org/10.2139/ssrn.2021384

Zhi Li (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
714-6287224 (Phone)

Lingling Wang

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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