Performance-vesting provisions in executive compensation

Bettis, J. Carr; Bizjak, John M.; Coles, Jeffrey L.; Kalpathy, Swaminathan L.

doi:10.1016/j.jacceco.2018.05.001

Cited by 195 publications

(104 citation statements)

References 46 publications

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“…12 A third variety is performance-accelerated stock and option grants, which vest faster if one or more performance conditions are ful…lled and otherwise behave like time-vesting grants. They saw some use in the late 1990s but vanished almost completely by 2010 (Bettis, Bizjak, Coles, and Kalpathy, 2016).…”

Section: Performance-based Equitymentioning

confidence: 99%

“…Among the 750 largest U.S. public …rms, Bettis, Bizjak, Coles, and Kalpathy (2016) …nd that the fraction using performance-based equity rose from 20% in 1998 to 70% in 2012. By 2012, the number of …rms granting performance-based equity exceeded that granting time-vesting stock for the …rst time.…”

mentioning

confidence: 99%

“…Combining the hand-collected samples of Gerakos, Ittner, andLarcker (2009), Bettis, Bizjak, Coles, andKalpathy (2010), and Bettis et al (2016) reveals several interesting facts about the use of performance-based equity:…”

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confidence: 99%

“…Bettis et al (2016) …nd that target performance levels are achieved for only 47% of grants, and that performance provisions reduce the grant-date value of awards by 42% compared to similar grants without provisions.…”

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confidence: 99%

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Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

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Section: Performance-based Equitymentioning

confidence: 99%

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confidence: 99%

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confidence: 99%

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confidence: 99%

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Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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“…In contrast, Liu andMauer (2011), Hayes, Lemmon, andQiu (2012), and Kini and Williams (2012) report evidence that ESOs inflate cash holdings and reduce leverage and stock return volatility. Bettis, Bizjak, Coles, and Kalpathy (2010) and Bizjak, Bettis, Coles, and Kalpathy (2015) caution that performance-vesting provisions, which have become more common in recent years, complicate the convexity estimations in many of these studies. Furthermore, it is widely recognized that endogeneity clouds the interpretation of some results, so we are wary of making a firm conclusion based on the results in this literature.…”

Section: Introductionmentioning

confidence: 99%

Do Stock Options Overcome Managerial Risk Aversion? Evidence from Exercises of Executive Stock Options

Heron

Lie

2017

Management Science

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We report that the probability that executives exercise options early decreases with the volatility of the underlying stock return. We interpret this to mean that executives' subjective option value increases with volatility and that option grants increase executives' risk appetite. Further decomposition reveals that the results are most pronounced for idiosyncratic volatility, consistent with our conjecture that executives believe they can better predict or influence the resolution of idiosyncratic uncertainty than systematic uncertainty, and, thus, favor the former.We thank the Editor (Wei Jiang), the Associate Editor, two anonymous referees, and seminar participants at BI Norwegian Business School, Cal State Fullerton, City University of Hong Kong, Florida State University, Northeastern University, the University of Nebraska, and the University of Oregon for helpful comments. Electronic copy available at: http://ssrn.com/abstract=2810289 Do stock options overcome managerial risk aversion? Evidence from exercises of executive stock options (ESOs) AbstractWe report that the probability that executives exercise options early decreases with the volatility of the underlying stock return. We interpret this to mean that executives' subjective option value increases with volatility and that option grants increase executives' risk appetite. Further decomposition reveals that the results are most pronounced for idiosyncratic volatility, consistent with our conjecture that executives believe they can better predict or influence the resolution of idiosyncratic uncertainty than systematic uncertainty, and, thus, favor the former.

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How does demand uncertainty from climate change exposure affect the firms' cost structures? Examining the real effects of climate change on the firms' operational decisions

Kim

Choi

Jung

et al. 2023

Corp Soc Responsibility Env

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This article explores how climate change exposure affects the firms' cost structures. We use Sautner et al.'s (2023) measure of firm‐level climate change exposure based on earnings conference calls of publicly‐listed U.S. companies from 2002 to 2020 to capture both the opportunities and threats brought about by climate change and understand the comprehensive impact of climate change on the firms' cost structure decisions. Prior literature has documented that firms strategically alter their cost structure when demand is uncertain and firms are concerned about unusually high or low demand realizations. We build on this prior literature and find that firms exposed to climate change adopt a more rigid cost structure with a higher proportion of fixed costs. Our findings suggest that firms perceive higher congestion costs from unusually high demand realizations caused by long‐term climate change. We find that the effect of climate change exposure on cost rigidity is more pronounced for firms with more positive demand expectations and firms in more competitive product markets. Lastly, we find that investors react positively to the rigid cost structure of firms exposed to climate change. Overall, this article sheds light on the real effects of climate change on the firms' operational decisions.

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Performance-vesting provisions in executive compensation

Cited by 195 publications

References 46 publications

Executive Compensation: A Survey of Theory and Evidence

Executive Compensation: A Survey of Theory and Evidence

Do Stock Options Overcome Managerial Risk Aversion? Evidence from Exercises of Executive Stock Options

How does demand uncertainty from climate change exposure affect the firms' cost structures? Examining the real effects of climate change on the firms' operational decisions

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