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Executive Compensation Incentives Contingent on Long-Term Accounting Performance

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  • Zhi Li
  • Lingling Wang

Abstract

The percentage of S&P 500 firms using multiyear accounting-based performance (MAP) incentives for CEOs increased from 16.5% in 1996 to 43.3% in 2008. The use and design of MAP incentives depend on the signal quality of accounting versus stock performance, shareholder horizons, strategic imperatives, and board independence. After the technology bubble, option expensing, and the publicity of option backdating, firms increasingly use stock-based MAP plans to replace options, resulting in changes in pay structure, but not in pay level. While firms respond to the evolving contracting environment, they consider firm characteristics and shareholder preferences and do not blindly follow the trend.

Suggested Citation

  • Zhi Li & Lingling Wang, 2016. "Executive Compensation Incentives Contingent on Long-Term Accounting Performance," The Review of Financial Studies, Society for Financial Studies, vol. 29(6), pages 1586-1633.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:6:p:1586-1633.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhw011
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    Citations

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    Cited by:

    1. Abdoh, Hussein & Liu, Yu, 2021. "Does R&D intensity matter in the executive risk incentives and firm risk relationship?," Economic Modelling, Elsevier, vol. 96(C), pages 13-24.
    2. Bettis, J. Carr & Bizjak, John & Coles, Jeffrey L. & Kalpathy, Swaminathan, 2018. "Performance-vesting provisions in executive compensation," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 194-221.
    3. Erkens, Michael H.R. & Gan, Ying & Yurtoglu, B. Burcin, 2018. "Not all clawbacks are the same: Consequences of strong versus weak clawback provisions," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 291-317.
    4. Canil, Jean & Karpavičius, Sigitas, 2022. "Managerial risk-taking incentives and cash holding in U.S. firms: Evidence from FAS 123R," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 605-628.
    5. Darren Henderson, 2022. "Fair values and compensation contracting: Evidence from real estate firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(5-6), pages 627-657, May.
    6. Efing, Matthias & Ehmann, Stefanie & Kampkötter, Patrick & Moritz, Raphael, 2024. "All Hat and No Cattle? ESG Incentives in Executive Compensation," HEC Research Papers Series 1507, HEC Paris.
    7. Xin Qu & Daifei Yao & Majella Percy, 2020. "How the Design of CEO Equity-Based Compensation can Lead to Lower Audit Fees: Evidence from Australia," Journal of Business Ethics, Springer, vol. 163(2), pages 281-308, May.
    8. Weiwei Chen & Benjamin Melamed & Oleg Sokolinskiy & Ben Sopranzetti, 2017. "Cash Conversion Systems in Corporate Subsidiaries," Manufacturing & Service Operations Management, INFORMS, vol. 19(4), pages 604-619, October.
    9. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    10. Fee, C Edward & Li, Zhi & Peng, Qiyuan, 2023. "Hidden Gems: Do market participants respond to performance expectations revealed in compensation disclosures?," Journal of Accounting and Economics, Elsevier, vol. 75(1).
    11. He, Eric & Jacob, Martin & Vashishtha, Rahul & Venkatachalam, Mohan, 2022. "Does differential taxation of short-term relative to long-term capital gains affect long-term investment?," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    12. Colonnello, Stefano & Koetter, Michael & Wagner, Konstantin, 2020. "Effectiveness and (in)efficiencies of compensation regulation: Evidence from the EU banker bonus cap," IWH Discussion Papers 7/2018, Halle Institute for Economic Research (IWH), revised 2020.
    13. Huang, Yin-Siang & Lee, Cheng-Few & Lin, Chih-Yung, 2023. "Applications of fixed effect models to managerial risk-taking incentives," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 249-261.
    14. Suhaib Ahmad & Abdurrahman Adamu Pantamee & Syed Moin-ud-Din Shah, 2020. "The Role of Human Resource Management Practices on Palm Oil Firm’s Performance in Malaysia with Mediating Role of Organizational Learning Capabilities and Moderating Role of Organizational Support," iRASD Journal of Management, International Research Alliance for Sustainable Development (iRASD), vol. 2(1), pages 22-33, June.
    15. Saito, Yoshie, 2019. "Are long-tenured CEOs rent seekers? Analysis of cash compensation and post disposal performance," Advances in accounting, Elsevier, vol. 44(C), pages 95-107.
    16. Vo, Thi Thanh Nha & Canil, Jean Milva, 2019. "CEO pay disparity: Efficient contracting or managerial power?," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 168-190.

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