The Effect of Performance Shares on Executive Incentives

62 Pages Posted: 10 Aug 2017 Last revised: 23 Aug 2017

See all articles by Andrea Pawliczek

Andrea Pawliczek

University of Missouri at Columbia - School of Accountancy

Date Written: August 22, 2017

Abstract

I examine the determinants of performance share awards (PSAs), focusing on the factors associated with the recent increase in PSA use, and the effects of PSA use on key characteristics of compensation, pay levels and pay-for-performance sensitivity. PSAs are equity awards for which the number of shares that vest varies based on performance compared to pre-determined goals. I find that poor Say-on-Pay voting outcomes are associated with more aggressive adoption of PSAs and that PSAs have primarily replaced stock options in equity awards. Compared to stock options, PSAs have not affected ex ante compensation levels (grant date fair value), but have resulted in ex post payouts that are less variable and no lower. Moreover, PSA payouts increase in measures of CEO power. Collectively, these results support the hypothesis that PSAs are being used to disguise compensation rather than improve incentive alignment.

Keywords: CEO compensation, equity compensation, performance-based equity

JEL Classification: M41, M52, G3

Suggested Citation

Pawliczek, Andrea, The Effect of Performance Shares on Executive Incentives (August 22, 2017). Available at SSRN: https://ssrn.com/abstract=3015967 or http://dx.doi.org/10.2139/ssrn.3015967

Andrea Pawliczek (Contact Author)

University of Missouri at Columbia - School of Accountancy ( email )

420 Cornell Hall
Columbia, MO 65211
United States

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