Voluntary Clawback Adoption and the Use of Financial Measures in CFO Bonus Plans

Posted: 20 Aug 2013 Last revised: 12 May 2018

See all articles by Peter Kroos

Peter Kroos

University of Amsterdam - Amsterdam Business School

Mario Schabus

University of Melbourne

Frank Verbeeten

University of Amsterdam - Faculty of Economics and Business, Amsterdam Business School

Date Written: August 1, 2017

Abstract

Firms trade-off CFOs’ fiduciary duties against their decision-making duties when designing CFO bonus plans. Decreasing bonus incentives tied to financial measures benefits CFOs’ fiduciary responsibilities at the expense of motivating their decision making duties. As prior research indicates that clawbacks increase personal misreporting costs through the loss of previously awarded compensation, we examine whether clawbacks allow firms to increase incentives in CFO bonus contracts. Based on a sample of U.S. firms between 2007 and 2013, we find that clawbacks are associated with greater CFO bonus incentives. We also find the increase in incentives to be more pronounced for CFOs relative to other executives. Our results are moderated by firms’ susceptibility to misreporting. The relation between clawbacks and incentives is weaker when firms experienced internal control deficiencies, have larger abnormal accruals, when CFOs are more vulnerable to pressure from CEOs, and when audit committees have less financial expertise and prestige.

Keywords: Incentives, CFOs, clawbacks, Financial Reporting Quality

JEL Classification: J33, M41, M52

Suggested Citation

Kroos, Peter and Schabus, Mario and Verbeeten, Frank H.M., Voluntary Clawback Adoption and the Use of Financial Measures in CFO Bonus Plans (August 1, 2017). The Accounting Review, Vol. 93, No. 3, May 1, 2018. Available at SSRN: https://ssrn.com/abstract=2312762 or http://dx.doi.org/10.2139/ssrn.2312762

Peter Kroos (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

Mario Schabus

University of Melbourne ( email )

Victoria, 3010
Australia

Frank H.M. Verbeeten

University of Amsterdam - Faculty of Economics and Business, Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands
(+31)0205257391 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
428
PlumX Metrics