Ending Executive Manipulations of Incentive Compensation

Journal of Corporation Law, Forthcoming

Ross School of Business Paper No. 1305

51 Pages Posted: 2 Mar 2016

See all articles by Sureyya Avci

Sureyya Avci

University of Michigan, Stephen M. Ross School of Business

Cindy A. Schipani

University of Michigan, Stephen M. Ross School of Business

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Date Written: February 1, 2016

Abstract

In this article, we analyze whether the manipulation of stock options still continues to this day. Our evidence shows that executives continue to employ a variety of manipulative devices to increase their compensation, including backdating, bullet-dodging, and spring- loading. Overall, we find that as a result of these manipulative devices executives are able to increase their compensation by about 6%. We suggest a simple new rule to end all dating games in executive compensation. We propose that all grants of stock options in executive compensation be awarded on a daily pro-rata basis and priced accordingly. This proposal would leave no incentive to game option grant dates or manipulate information flow.

Keywords: incentive compensation, stock options, backdating, securities regulation, corporate governance

JEL Classification: K22, G34, G38, J33, J38

Suggested Citation

Avci, Sureyya and Schipani, Cindy A. and Seyhun, H. Nejat, Ending Executive Manipulations of Incentive Compensation (February 1, 2016). Journal of Corporation Law, Forthcoming; Ross School of Business Paper No. 1305. Available at SSRN: https://ssrn.com/abstract=2740637

Sureyya Avci (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Cindy A. Schipani

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
(734) 763-2257 (Phone)
(734) 763-2257 (Fax)

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

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