CEO compensation: The role of individual performance evaluation

Bushman, Robert M.; Indjejikian, Raffi; Smith, Abbie J.

doi:10.1016/0165-4101(95)00416-5

Cited by 416 publications

(222 citation statements)

References 23 publications

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“…We start with HM's prediction that incentives are decreasing in risk . While Lambert and Larcker (1987), Aggarwal and Samwick (1999a), and Jin (2002) …nd a negative relationship, Core and Guay (1999), Oyer and Schaefer (2005), and Coles, Daniel, and Naveen (2006) document a positive one, and Garen (1994), Yermack (1995), Bushman, Indjejikian, and Smith (1996), Ittner, Larcker, and Rajan (1997), Conyon and Murphy (2000), Landier (2009), andCheng, Hong, andScheinkman (2015) show either no relationship or mixed results. The mixed results arise, in part, because of di¤erences in the measurement of incentives (e¤ective percentage versus dollar ownership) and risk (Aggarwal and Samwick (1999a) and Jin (2002) study the volatility of dollar returns; the other papers study percentage returns).…”

Section: Evidencementioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

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Section: Evidencementioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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“…Empirical studies that explore the role of agency costs in compensation arrangements include Lewellen, Loderer, and Martin 1987;Smith and Watts 1992;Sloan 1993;Gaver and Gaver 1993;Matsunaga 1995;Yermack 1995;Baber, Janakiraman, and Kang 1996;and Bushman, Indjejikian, and Smith 1996. These studies formed the basis of our controls for agency costs.…”

Section: Control Variablesmentioning

confidence: 99%

“…Growth opportunities are also considered to be related to agency costs due to information asymmetry between managers and capital providers over the future investment opportunities of the firm. Variables commonly used to proxy for growth opportunities include the five-year logarithmic growth in total assets (Lambert and Larcker 1987), the book-to-market ratio (Lewellen et al 1987;Smith and Watts 1992;Gaver and Gaver 1993), and an indicator variable for research and development firms (Gaver and Gaver 1993;Baber et al 1996;Bushman et al 1996;Douglas et al 1997). An indicator variable was used to avoid constraining the influence of the highly skewed R&D expense (even when deflated) to be linear.…”

Section: Control Variablesmentioning

confidence: 99%

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs

KLASSEN¹,

Waterloo²,

MAWANI³

et al. 2000

Contemporary Accounting Research

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This study explores the effects of financial and tax reporting incentives on options granted to chief executive officers in Canada. Extant studies with a similar objective (Yermack 1995;Matsunaga 1995) explore predominantly nonqualified U.S. option grants that are deductible to the extent that the options are in the money at the time of exercise. In contrast, Canadian firms do not get a tax deduction for their stock option grants at any time. In both countries, no expense is recorded for financial reporting purposes. As a result, the financial reporting and tax reporting trade-off is more pronounced in the Canadian setting of this study compared with the U.S. setting.We measure option granting behavior as the ratio of the Black-Scholes value of stock option grants to the sum of cash compensation and the value of stock option grants. Using a sample of 806 firm-year observations during the period 1993-95, we find that observed option grants are significantly correlated with proxies for short-run financial reporting incentives. We also find evidence that option granting behavior is correlated with proxies for tax incentives. Keywords Stock options; Taxation; Financial reporting; Hypothesis testing CondenséLe recours aux options d'achat d'actions dans le régime de rémunération des cadres peut augmenter le bénéfice déclaré dans le contexte de l'information financière puisque la charge au titre des salaires afférente aux options dans l'état des résultats est habituellement nulle. Il se peut donc que les sociétés plus sensibles au bénéfice déclaré (c'est-à-dire celles pour qui les coûts de l'information financière sont plus élevés) soient davantage susceptibles d'octroyer à leurs cadres des options d'achat d'actions, de manière à éviter la constatation Plus précisément, le contexte canadien est fort différent du contexte des États-Unis sur lequel se sont penchés Yermack (1995) et Matsunaga (1995. Ces derniers testent dans leurs études les données des États-Unis relatives à l'octroi d'options majoritairement sans restriction dont l'avantage connexe peut être déduit par la société au moment de la levée. Les auteurs de la présente étude, au contraire, examinent les options octroyées au Canada pour lesquelles aucune déduction fiscale n'est permise au moment de la levée. Le recours aux options exige donc des sociétés canadiennes qu'elles parviennent à un compromis entre les avantages de l'information financière et les coûts fiscaux, tandis que le recours aux options sans restriction aux États-Unis offre le meilleur des deux mondes (la déductibilité fiscale et aucune charge dans l'état des résultats). En conséquence, l'élément fiscal dissuasif que comporte l'octroi d'options devrait être plus accentué dans la présente étude que dans celle de Yermack (1995) ou de Matsunaga (1995). Le principal apport des auteurs est ici de documenter les conséquences de l'absence de déduction fiscale sur l'octroi par les sociétés d'options d'achat d'actions aux cadres. Les auteurs recueillent également d'autres faits démontrant l'inci...

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“…A combination of these two would of course be possible.Theory suggests qualitative measures as appropriate performance measures if it is difficult to define objective performance targets or difficult to measure results [24][25]. The problem is their subjectivity and their descriptive nature making it difficult to compare measures in time, space and between respondents.…”

Section: How Could the Intangible Aspects Of The Strategy Be Measured?mentioning

confidence: 99%

Measuring the Intangible Aspects of the Manufacturing Strategy – A Case Study from the Automotive Industry

Henriksen

Onsøyen

2010

IFIP Advances in Information and Communication Technology

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Abstract. In this paper we focus on how manufacturing strategies should be measured in an increasingly complex manufacturing environment where the "traditional" quality and productivity measures are not sufficient. The paper discusses and illustrates measures, quantitative and qualitative, that are relevant for manufacturing strategies based on principles from different paradigms. From our case in the automotive industry we see that the company should measure intangible aspects, but that they could be difficult to measure and there is a risk of just measuring what could be counted. There could easily be a discrepancy between what are actually measured and what should have been measured according to the announced strategy.

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CEO compensation: The role of individual performance evaluation

Cited by 416 publications

References 23 publications

Executive Compensation: A Survey of Theory and Evidence

Executive Compensation: A Survey of Theory and Evidence

The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs

Measuring the Intangible Aspects of the Manufacturing Strategy – A Case Study from the Automotive Industry

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