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Stock and Compensation

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  • Scholes, Myron S

Abstract

Compensation planning within firms creates important corporate financial problems. Theoretical models and empirical tests of hypotheses in this area should play a much larger role than currently in the modern theory of corporate finance. Employees fund a large proportion of their firm's activities through deferred compensation arrangements tied to the performance of their company. These arrangements are generally put in place for incentive reasons, to align the interests of employees more closely with those of shareholders. Moreover, tax rules encourage or discourage these arrangements at various times. Currently, both tax rules and incentive considerations encourage stock buyback programs to fund deferred compensation arrangements. Prior to the 1980s, however, tax rules favored funding in other than company stock, implying that employees likely held company stock for incentive and not for tax reasons during this time period. Copyright 1991 by American Finance Association.

Suggested Citation

  • Scholes, Myron S, 1991. "Stock and Compensation," Journal of Finance, American Finance Association, vol. 46(3), pages 803-823, July.
    • Handle: RePEc:bla:jfinan:v:46:y:1991:i:3:p:803-23
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    Cited by:

    1. Keith D. Harvey & Ronald E. Shrieves, 2001. "Executive Compensation Structure And Corporate Governance Choices," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 495-512, December.
    2. Denis Cormier & Michel Magnan & Mahé Léna Fall, 1999. "L'octroi d'options sur actions aux dirigeants et la performance financière de la firme:une étude canadienne," Revue Finance Contrôle Stratégie, revues.org, vol. 2(2), pages 25-49, June.
    3. Glenn Pfeiffer & Timothy Shields, 2012. "Performance-Based Compensation and Firm Value: Experimental evidence," Working Papers 12-17, Chapman University, Economic Science Institute.
    4. Chris Veld & Betty H.T. Wu, 2014. "What Drives Executive Stock Option Backdating?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(7-8), pages 1042-1070, September.

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