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The Role of Stock Price Informativeness in Compensation Complexity

Author

Listed:
  • Bennett, Benjamin

    (Ohio State University (OSU) - Department of Finance)

  • Garvey, Gerald

    (Blackrock)

  • Milbourn, Todd

    (Washington University in Saint Louis - Olin Business School)

  • Wang, Zexi

    (University of Bern)

Abstract

We study the effect of stock price informativeness (SPI) on executive compensation complexity. Using textual analysis of SEC proxy statements to construct compensation complexity measures for US public firms, we find strong evidence that higher SPI reduces pay complexity. We then use mutual fund redemption as an exogenous decrease in SPI to address endogeneity concerns. When fund flow pressure is high, pay includes more performance metrics, a greater number of vesting periods, and options with longer vesting periods. When stock prices convey information more effectively, executive pay is simpler.

Suggested Citation

  • Bennett, Benjamin & Garvey, Gerald & Milbourn, Todd & Wang, Zexi, 2019. "The Role of Stock Price Informativeness in Compensation Complexity," Working Paper Series 2019-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2019-7
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    Cited by:

    1. Bennett, Benjamin & Stulz, René & Wang, Zexi, 2020. "Does the stock market make firms more productive?," Journal of Financial Economics, Elsevier, vol. 136(2), pages 281-306.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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