Executive Bonus Target Ratcheting: Evidence from the New Executive Compensation Disclosure Rules

65 Pages Posted: 12 Aug 2014 Last revised: 1 Mar 2016

See all articles by Sunyoung Kim

Sunyoung Kim

Monash University

Jae Yong Shin

Seoul National University - College of Business Administration

Date Written: February 02, 2016

Abstract

This study investigates whether firms revise executive bonus compensation targets based on past performance. Studies in this area suffer from a lack of detailed information related to executive performance targets. Using mandatory disclosures of executive compensation information under the U.S. Securities and Exchange Commission’s new disclosure rules, this study provides the first large-sample evidence of bonus target ratcheting. There are three major findings: (1) Executive bonus targets ratchet and they ratchet asymmetrically; (2) the degree of target ratcheting and ratcheting asymmetry vary with firm executive equity incentives, investment opportunities, and executives’ time horizons; and (3) performance relative to bonus target is serially correlated.

Keywords: Executive compensation, annual bonus, performance targets, ratcheting

JEL Classification: M41; M21

Suggested Citation

Kim, Sunyoung and Shin, Jae Yong, Executive Bonus Target Ratcheting: Evidence from the New Executive Compensation Disclosure Rules (February 02, 2016). AAA 2015 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=2479111 or http://dx.doi.org/10.2139/ssrn.2479111

Sunyoung Kim

Monash University ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia
613 99032183 (Phone)

Jae Yong Shin (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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