Matching Delivered Performance

CEO turnover and properties of accounting information

“…88-89), who focuses on the ability of earnings to shield executives from market-wide movements in stock prices. Our analysis is closer in spirit to Barclay et al (2000), who also assume that stock price reflects both current and anticipated earnings and examine the implications of timing differences in earnings and returns. 10 A common intuition for the Lambert and Larcker (1987) and Ittner et al (1997) view is that if earnings contain ''different'' information from returns, then earnings are a more valuable signal of managerial performance.…”

Asymmetric sensitivity of CEO cash compensation to stock returns

“…The ex post settling up problem arises when managers are paid for expected future cash flows that do not materialize. For example, if the CEO receives a bonus for signing a firm-value increasing long-term contract, but later the contract is canceled, the stockholders incur costs recouping the bonus paid for expected cash flows that vanish (Watts, 2003a;Barclay et al, 2005). 1 We argue that efficient cash compensation contracts mitigate the ex post settling up problem by limiting cash distributions to managers for unrealized gains that may later disappear.…”

Are CEOs compensated for value destroying growth in earnings?

“…The interaction of RET t with INSTPER is negative but insignificant. The greater sensitivity of compensation growth to earnings growth is consistent with institutional investors having a preference for delivered performance that earnings represent as opposed to expected performance that returns reflect (Barclay et al 2005).…”

“…First, Sloan (1993) argues that the use of earnings in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control. Second, Barclay et al (2005) contend that both earnings and returns have a role in compensation because earnings represent delivered performance while returns represent expected future performance. We start with the following baseline specification for compensation growth.…”