Duration of Executive Compensation
50 Pages Posted: 9 Jan 2013
Date Written: December 18, 2012
Extensive discussions of the inefficiencies of "short-termism" in executive compensation notwithstanding, very little is known empirically about the extent of such short-termism. This paper develops a novel measure of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short-term. Using this measure, we calculate executive pay duration in various industries and document correlations between executive pay duration and a host of firm characteristics. Pay duration is longer in firms with more growth opportunities, more long-term assets, greater R&D intensity, in less risky firms and in firms with better recent stock performance. Longer CEO pay duration is also negatively related to the extent of earnings increasing accruals.
Keywords: executive compensation, vesting, duration, managerial myopia, corporate governance
JEL Classification: G30, J33
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