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Contractual features of CEO performance-vested equity compensation

Research output: Contribution to journalJournal article

<mark>Journal publication date</mark>12/2017
<mark>Journal</mark>Journal of Contemporary Accounting and Economics
Issue number3
Number of pages22
Pages (from-to)282-303
Early online date19/09/17
<mark>Original language</mark>English


We investigate the key contractual features of CEO performance-vested (p-v) equity compensation. We hypothesize that contractual features such as relative performance evaluation (RPE), the performance period length, and the number of performance metrics can be configured to improve the informativeness of performance metrics. Consistent with the hypotheses, we find that firms using market metrics are more likely to adopt RPE and long performance periods than firms using accounting metrics. The effects of performance metrics on RPE and performance periods remain prominent after we allow these features to be jointly determined. Moreover, we find that RPE is positively associated with longer performance periods, suggesting that the two features complement each other in improving the informativeness of performance metrics in p-v equity compensation. Our findings not only reveal the intricate relations between the contractual features, but also provide empirical support for the voting guidelines by proxy advisory services and have implications for the evolving practice of executive compensation.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Contemporary Accounting and Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Contemporary Accounting and Economics, 13, 3, 2017 DOI: 10.1016/j.jcae.2017.09.005