Executive Compensation Incentives Contingent on Long-Term Accounting Performance
59 Pages Posted: 14 Mar 2012 Last revised: 30 Oct 2015
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: Suggested Citation