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Taxation and executive compensation: Evidence from stock options

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  • Bird, Andrew

Abstract

Understanding the effects of taxes on executive compensation provides insight into the process determining this compensation and is a key input to top income tax rate policy. A 2010 tax reform in Canada, which greatly increased the effective tax rate on stock option compensation for a subset of firms, provides a natural experiment with which to address this issue. Difference-in-differences estimates suggest that this tax increase resulted in an immediate reduction in both stock option grants and the fraction of total compensation made up of stock options with limited, if any, substitution towards other components of compensation.

Suggested Citation

  • Bird, Andrew, 2018. "Taxation and executive compensation: Evidence from stock options," Journal of Financial Economics, Elsevier, vol. 127(2), pages 285-302.
    • Handle: RePEc:eee:jfinec:v:127:y:2018:i:2:p:285-302
    DOI: 10.1016/j.jfineco.2017.11.006
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    References listed on IDEAS

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    Cited by:

    1. Jiang, Xiandeng & Huang, Ruoyao & Wang, Chuanjie, 2023. "Tax enforcement and efficiency wages: Evidence from China’ Golden Tax Project III," Finance Research Letters, Elsevier, vol. 58(PB).
    2. Paweł Doligalski & Abdoulaye Ndiaye & Nicolas Werquin, 2023. "Redistribution with Performance Pay," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 1(2), pages 371-402.
    3. Niemann, Rainer & Sailer, Mariana, 2024. "Do taxes explain why firms rarely use performance-based malus contracts?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 55(C).
    4. Huang, Yongjian & Ren, Zhaoyue & Zhang, Hongwei & Wen, Pengxiang & Li, Zhouyang, 2024. "Tax incentives for key employees and corporate innovation," Economics Letters, Elsevier, vol. 238(C).
    5. Sagade, Satchit & Scharnowski, Stefan & Westheide, Christian, 2022. "Broker colocation and the execution costs of customer and proprietary orders," SAFE Working Paper Series 366, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Executive compensation; Taxation; Stock options;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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