The Response of Deferred Executive Compensation to Changes in Tax Rates
41 Pages Posted: 8 Sep 2015 Last revised: 17 Apr 2021
Date Written: September 2015
Given the increasing use of stock options in executive compensation, we examine how taxes influence the choice of compensation and document that income deferral is an important margin of adjustment in response to tax rate changes. To account for this option in the empirical analysis, we explore deferral by estimating how executives’ choice of compensation between current and deferred income depends on changes in tax policy. Our empirical results suggest a significant impact of taxes on the composition of executive compensation.
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