Performance-Vesting Provisions in Executive Compensation

66 Pages Posted: 4 Jul 2013 Last revised: 19 Oct 2018

See all articles by J. Carr Bettis

J. Carr Bettis

Arizona State University (ASU) - Finance Department; Fathom Lab; Verus Analytics, Inc

John M. Bizjak

Texas Christian University

Jeffrey L. Coles

University of Utah - Department of Finance; Arizona State University (ASU) - Finance Department

Swaminathan L. Kalpathy

Texas Christian University - M.J. Neeley School of Business

Date Written: May 10, 2018

Abstract

The usage of performance-vesting (p-v) equity awards to top executives in large U.S. companies has grown from 20 to 70 percent from 1998 to 2012. We measure the effects of p-v provisions on value, delta, and vega of equity-based compensation. We find large differences in the value of p-v awards reported in company disclosures versus economic value. We also find that equity-based grants continue to convey significant compensation convexity (vega) after ASC 718 (2005) and that, counter to recent claims in the literature, our analysis empirically reaffirms the presence of a causal relation between compensation convexity (vega) and firm risk.

Keywords: Performance-vesting provisions, executive compensation, stock awards, option awards, time-vesting, performance measures, CEO pay, corporate governance

JEL Classification: M52, M55, J33, G34; G32, G13, M41

Suggested Citation

Bettis, J. Carr and Bizjak, John M. and Coles, Jeffrey L. and Kalpathy, Swaminathan L., Performance-Vesting Provisions in Executive Compensation (May 10, 2018). Journal of Accounting & Economics (JAE), Vol. 66, 2018. Available at SSRN: https://ssrn.com/abstract=2289566 or http://dx.doi.org/10.2139/ssrn.2289566

J. Carr Bettis

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Fathom Lab ( email )

16211 N. Scottsdale Rd
#A6A-628
Scottsdale, AZ 85254
United States

Verus Analytics, Inc ( email )

15210 N Scottsdale Rd
Suite 250
Scottsdale, AZ 85254
United States

John M. Bizjak

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-4260 (Phone)

Jeffrey L. Coles (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-4475 (Phone)
480-965-8539 (Fax)

Swaminathan L. Kalpathy

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

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