Duration of Executive Compensation

50 Pages Posted: 9 Jan 2013

See all articles by Radhakrishnan Gopalan

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Todd T. Milbourn

Washington University in Saint Louis - Olin Business School

Fenghua Song

Pennsylvania State University - Smeal College of Business

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Date Written: December 18, 2012

Abstract

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

Suggested Citation

Gopalan, Radhakrishnan and Milbourn, Todd T. and Song, Fenghua and Thakor, Anjan V., Duration of Executive Compensation (December 18, 2012). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2198397

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Todd T. Milbourn

Washington University in Saint Louis - Olin Business School ( email )

1 Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6392 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/milbourn/

Fenghua Song (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States
814.863.4905 (Phone)

HOME PAGE: http://sites.google.com/site/fenghua8song/

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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