Value-Based CEO Equity Grants

69 Pages Posted: 5 Dec 2024

See all articles by Pengfei Ye

Pengfei Ye

Virginia Tech

Jin Xu

Virginia Tech - Pamplin College of Business

Cheng Zhang

Shanghai University of Finance and Economics

Date Written: September 06, 2024

Abstract

We document firms often determine CEO equity grants based on a predetermined dollar value (value-based equity grant) instead of on the number of shares (share-based grant). Value-based equity grants weaken the relationship between stock performance and CEO equity pay, lower CEO portfolio delta, and slow firms' investment in R&D. We find that retention pressure is a key reason for the use of value-based equity pay, while governance could also matter. Overall, this paper alerts boards to the unintended consequences of pursuing a target pay level or pay structure because such practices can lead to value-based equity grants in CEO compensation.

Keywords: Compensation, Pay-Performance Sensitivity, Retention, Pay Benchmarking, CEO Compensation, Executive Incentives, Equity Grants

JEL Classification: D86, G34, J3, M12 CEO

Suggested Citation

Ye, Pengfei and Xu, Jin and Zhang, Cheng, Value-Based CEO Equity Grants (September 06, 2024). Available at SSRN: https://ssrn.com/abstract=5007040 or http://dx.doi.org/10.2139/ssrn.5007040

Pengfei Ye (Contact Author)

Virginia Tech ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Jin Xu

Virginia Tech - Pamplin College of Business ( email )

Cheng Zhang

Shanghai University of Finance and Economics ( email )

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