Compensation Committees' Treatment of Earnings Components in CEOs' Terminal Years

Huson, Mark R.; Tian, Yao; Wiedman, Christine I.; Wier, Heather A.

doi:10.2308/accr-10164

Cited by 54 publications

(42 citation statements)

References 52 publications

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“…Because a CEO's compensation is generally comprised of a cash component (salary plus bonus) and a stock-based component (options plus restricted stock), we focus on these two components in separate regression analyses. Our methodological approah is similar to prior work that provides evidence on relation between CEO compensation and various earnings components in other contexts such as Dechow, Huson & Sloan (1994); Gaver & Gaver (1998); Comprix & Muller (2006); and Huson, Tian, Wiedman & Wier (2012). Our baseline regression model provides several interesting results.…”

Section: Introductionsupporting

confidence: 55%

Fair Value Gains and Losses in Derivatives and CEO Compensation

Manchiraju

Hamlen

Kross

et al. 2015

Journal of Accounting, Auditing & Finance

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This study examines the sensitivity of CEO compensation to fair value gains and losses in derivatives for firms in the U.S. oil and gas industry. Our evidence indicates that firms use derivatives for both hedging and non-hedging purposes and that the derivative gains have a substantial impact on firms' overall earnings. We find that CEOs are rewarded for hedge derivative gains, more so in firms facing high financial contracting costs. However, we find that non-hedge derivative gains are also rewarded. Furthermore, the CEO compensation is more sensitive to non-hedge derivative gains than it is to non-hedge derivative losses. This is surprising because non-hedge derivatives often relate to speculation or inefficient hedging. Overall, our results suggest that the board does not fully distinguish between the nature of derivative activities and rewards all gains in a similar fashion. The presence of accounting financial expert on the compensation committee, however, does improve efficient contracting.

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Section: Introductionsupporting

confidence: 55%

Fair Value Gains and Losses in Derivatives and CEO Compensation

Manchiraju

Hamlen

Kross

et al. 2015

Journal of Accounting, Auditing & Finance

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“…As a CEO approaches retirement, the incentive for myopic behavior increases (Kalyta 2009). The literature on the horizon problem has shown that, to mitigate the retiring CEO's horizon problem, boards treat executive compensation differently when a CEO is close to retirement (Cheng 2004;Huson et al 2012). Similarly, the board's choice of ratchet parameters may differ when the CEO is close to retirement.…”

Section: Hypothesis 2c: Ceo Horizons and Target Ratchetingmentioning

confidence: 99%

Executive Bonus Target Ratcheting: Evidence from the New Executive Compensation Disclosure Rules

Kim

Shin

2017

Contemporary Accting Res

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This study investigates whether firms revise executive bonus compensation targets based on past performance. Studies in this area suffer from a lack of detailed information related to executive performance targets. Using mandatory disclosures of executive compensation information under the U.S. Securities and Exchange Commission's new disclosure rules, this study provides the first large‐sample evidence of bonus target ratcheting. There are three major findings: (i) executive bonus targets ratchet and they ratchet asymmetrically; (ii) the degree of target ratcheting and ratcheting asymmetry vary with executive equity incentives and investment opportunities; and (iii) performance relative to bonus target is serially correlated.

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“…De Jong, Mertens, van der Poel, and van Dijk (2012) report that also analysts recognize a benefit of smooth earnings, although they dislike earnings smoothing if it reduces transparency.11 Huson, Tian, Wiedman, and Wier (2012) provide empirical evidence that compensation committees adjust the weights in the variable compensation in the final year of a CEO to counter the CEO's greater incentives for earnings-increasing manipulation.12 The reason that the horizon effect only indirectly affects the first-period earnings management is that the bias in the second period is more extreme and unrelated to the manager's nonfinancial information, which is anticipated in the first-period earnings management decision. Increasing the tenure of managers would, therefore, not qualitatively affect our results derived for the first period.Forward-Looking Accounting Standards 7 Downloaded by [New York University] at 09:03 03 June 2015…”

mentioning

confidence: 96%

Why More Forward-Looking Accounting Standards Can Reduce Financial Reporting Quality

Ewert

Wagenhofer

2015

European Accounting Review

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A premise of standard setters and of much empirical research is that improving the quality of accounting standards and their implementation increases information in capital markets. This paper challenges this premise and shows that there are situations in which 'better', that is, more forwardlooking, accounting standards reduce the information content of financial reports. The reason is that a forward-looking accounting standard affects the smoothness of reported earnings, which can conflict with the manager's smoothing incentive and her willingness to incorporate private information in the financial report. Although the manager could eliminate the effect by earnings management, it is too costly to do so. As a consequence, the capital market's ability to infer the financial and nonfinancial information in reported earnings declines. This finding should increase the awareness that an 'improvement' in accounting standards, without considering incentives and other information residing in firms, can adversely affect the quality of financial reporting.

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Compensation Committees' Treatment of Earnings Components in CEOs' Terminal Years

Cited by 54 publications

References 52 publications

Fair Value Gains and Losses in Derivatives and CEO Compensation

Fair Value Gains and Losses in Derivatives and CEO Compensation

Executive Bonus Target Ratcheting: Evidence from the New Executive Compensation Disclosure Rules

Why More Forward-Looking Accounting Standards Can Reduce Financial Reporting Quality

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