Equity Incentive Plans and Board of Director Discretion over Equity Grants

54 Pages Posted: 9 Aug 2021 Last revised: 9 Feb 2024

See all articles by Brian D. Cadman

Brian D. Cadman

University of Utah - David Eccles School of Business

Richard Carrizosa

University of California, Riverside (UCR) - School of Business Administration

Date Written: February 8, 2024

Abstract

Equity compensation is granted out of an equity incentive plan that must be approved by shareholders and cedes discretion over equity grants to boards of directors. We predict and find that equity plan proposals give boards more discretion over grants when the firm faces greater labor market forces and more volatile stock returns. When examining votes, we find that shareholders are less likely to support plans with abnormal discretion. We also find that boards with more discretion grant more equity in response to stock price declines. Lastly, we find that boards request additional shares when their ability to grant equity is more constrained by a smaller pool of available shares, and when they plan to increase equity grants. Overall our findings illuminate how firms balance needs to respond to labor market pressure and volatile operating environments against shareholder governance and oversight of equity compensation.

Keywords: equity incentive plans, executive compensation, shareholder voting

JEL Classification: G34, J33, M12, M52

Suggested Citation

Cadman, Brian D. and Carrizosa, Richard, Equity Incentive Plans and Board of Director Discretion over Equity Grants (February 8, 2024). Available at SSRN: https://ssrn.com/abstract=3899571 or http://dx.doi.org/10.2139/ssrn.3899571

Brian D. Cadman (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States
801-585-9517 (Phone)

HOME PAGE: http://www.business.utah.edu/bio/briancadman

Richard Carrizosa

University of California, Riverside (UCR) - School of Business Administration ( email )

United States

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