Implications of Clawback Adoption in Executive Compensation Contracts: A Survey of Recent Research

This paper empirically studies the connection between earnings management and corporate social performance, conditional on the existence of CSR-contingent executive compensation contracts, an emerging practice to link executive compensation to corporate social performance. We find that executives are more likely to manipulate earnings to achieve their personal compensation goals when CSR rating is low, as well as their CSR-contingent compensation. Because of public pressure on their excessive total compensation, corporate executives see no need to manipulate earnings to increase compensation when their CSR-contingent compensation is already high. Our results suggest that earnings management and CSR-contingent compensation are substitute tools to serve the interests of executives, which is an agency problem that was never previously studied. Additionally, we explore how managerial characteristics affect earnings management, driven by the incentive effects of CSR-linked compensation.

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Towards a Set of Design Principles for Executive Compensation Contracts

Abacus ◽

10.1111/abac.12090 ◽

2016 ◽

Vol 52 (4) ◽

pp. 619-684 ◽

Cited By ~ 15

Author(s):

Yaowen Shan ◽

Terry Walter

Keyword(s):

Executive Compensation ◽

Design Principles ◽

Compensation Contracts

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Determinants of CEO Pay: A Comparison of ExecuComp and Non-ExecuComp Firms

The Accounting Review ◽

10.2308/accr.2010.85.5.1511 ◽

2010 ◽

Vol 85 (5) ◽

pp. 1511-1543 ◽

Cited By ~ 62

Author(s):

Brian Cadman ◽

Sandy Klasa ◽

Steve Matsunaga

Keyword(s):

Executive Compensation ◽

Stock Returns ◽

Institutional Ownership ◽

Stock Option ◽

Ownership Concentration ◽

Positive Relation ◽

Stock Liquidity ◽

Compensation Contracts ◽

Cash Compensation ◽

Ceo Pay

ABSTRACT: We document that firms included in the ExecuComp database tend to be larger, more complex, followed by more analysts, have greater stock liquidity levels, and have higher total, but less concentrated, institutional ownership than other firms. Based on these differences, we test and find support for three predictions. First, ExecuComp firms rely more heavily on earnings and stock returns in determining CEO cash compensation. Second, the weight on earnings is more sensitive to differences in the extent of growth opportunities for ExecuComp firms. Third, the positive relation between institutional ownership concentration and the value of stock option grants is stronger for ExecuComp firms. Overall, our results suggest that ExecuComp and non-ExecuComp firms operate in different contracting environments that lead to differences in the design of their executive compensation contracts. As a result, care should be taken in extending results based on ExecuComp samples to non-ExecuComp firms.

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Accounting For Stock Based Employee Compensation: A Continuing Controversy

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v3i4.2764 ◽

2011 ◽

Vol 3 (4) ◽

Author(s):

William Wrege ◽

Mark Myring ◽

Joe Schroeder

Keyword(s):

Executive Compensation ◽

Stock Options ◽

Accounting Standards ◽

Market Value ◽

Stock Option ◽

Font Size ◽

Significant Component ◽

Employee Compensation ◽

Compensation Contracts ◽

History Of

Stock options represent an increasingly significant component of executive compensation. Theoretically, the inclusion of stock options in executive compensation contracts motivates managers to take actions that increase the market value of the firm's stock. Accounting standards regulating the treatment of stock options continue to be controversial. The focus of this paper is to examine the accounting treatment of stock options. We begin by outlining the controversial history of accounting for stock options.  Next, we examine the alternative accounting treatments for stock option.  Finally, we critique the proposed changes to the methods of accounting for stock options.

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