Performance share plans: Valuation and empirical tests

Holden, Craig W.; Kim, Daniel Sungyeon

doi:10.1016/j.jcorpfin.2017.03.004

Cited by 10 publications

(8 citation statements)

References 32 publications

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“…We assume that options vest if earnings exceed 28 See Bettis et al (2010) and Gerakos et al (2007). 29 Some further alternatives for modeling earnings and other accounting measures can be found in Holden and Kim (2017) and Bizjak et al (2012). Table 4 Earnings condition Vesting Changing parameter…”

Section: Accounting Performance Conditionmentioning

confidence: 99%

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Employee stock options with performance conditions: do commonly used valuation heuristics work?

Kanne

Uhrig‐Homburg

2018

Accounting & Finance

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Valuation heuristics are widely used to value traditional time vesting option plans. This study analyses if these heuristics also qualify for valuing performance vesting plans. We examine performance conditions tied to the underlying stock, the stock's performance relative to a stock index, and an earnings measure. The differences between the approximated option values and the values assuming optimal exercise are overall smaller with the performance conditions than without them. In particular, this result holds when the heuristic exercise assumptions are based on the case without performance conditions, which is a considerable simplification in practice.

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Section: Accounting Performance Conditionmentioning

confidence: 99%

“… Some further alternatives for modeling earnings and other accounting measures can be found in Holden and Kim () and Bizjak et al . (). …”

mentioning

confidence: 97%

Employee stock options with performance conditions: do commonly used valuation heuristics work?

Kanne

Uhrig‐Homburg

2018

Accounting & Finance

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“…depart from prior research and hand-collect the vesting percentage of PSA awards from proxy statements. Prior work (Bettis et al, 2015;Bizjak et al, 2016;Holden andKim, 2014, Core andPackard, 2016) considers the ex-ante valuation of PSAs and the effect of PSAs on common measures of compensation sensitivity (delta and vega). When evaluating ex-post outcomes from PSAs, these papers either simulate the outcomes or estimate ex-post vesting percentages based on financial statement information available in databases (e.g.…”

Section: Figure 1 -Equity By Type For Sandp 1500 Firmsmentioning

confidence: 99%

The Effect of Performance Shares on Executive Incentives

Pawliczek

2017

SSRN Journal

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“…Note 7The void is between traditional stock options and a-c awards is beginning to draw attention, however. Holden and Kim (2014) examine a stock grant with a single accounting vesting condition and provide a model to value this type of instrument. In what follows, we include this special case within a structure that allows us to consider a wide range of additional complexities found in existing contracts.…”

Section: Related Researchmentioning

confidence: 99%

“…Because the most popular accounting vesting criteria reported by BBCK involve earnings targets, for ease of exposition we call the accounting performance metric "earnings." Section 3.2 considers the special case of stock grants, rather than options, as the back-end instrument, which is similar to the contract analyzed by Holden and Kim (2014). In section 3.3, the basic equations are extended to consider payouts that vary over a range of performance levels rather than a single payout with a specific threshold target.…”

Section: The Expected Payoff and Approximate Valuation Of An Equity Amentioning

confidence: 99%

Modeling Equity Compensation under Accounting Contingencies

Bizjak¹,

Kalpathy²,

Thompson³

2016

AFR

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Of late, both U.S. and International firms have increased the granting of performance-contingent equity awards to their executive officers. Beyond simple stock options, these awards frequently include accounting-based performance targets. Failure to meet or exceed these targets causes award forfeiture. While now a common component in executive pay, little is known about how to value these instruments. In this paper, we model the expected payoff from an equity award with accounting-based payout conditions. The model incorporates numerous characteristics of awards seen in practice, including the coupling of stock price and accounting targets, multiple accounting targets, sliding payout schedules, and the adoption of both "and" and "or" conditions that trigger payout. We also translate the expected payoff into an approximate present value. Given the growing prevalence of performance-contingent features in executive pay, this exercise is important to academics, board members and shareholders, along with other market participants and regulators.

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Performance share plans: Valuation and empirical tests

Cited by 10 publications

References 32 publications

Employee stock options with performance conditions: do commonly used valuation heuristics work?

Employee stock options with performance conditions: do commonly used valuation heuristics work?

The Effect of Performance Shares on Executive Incentives

Modeling Equity Compensation under Accounting Contingencies

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