Performance-vesting provisions in executive compensation

By J. Bettis, John M. Bizjak, Jeffrey L. Coles, Swaminathan L. Kalpathy. Journal of Accounting & Economics, 2018

189 citations recorded by the source corpus.

The usage of performance-vesting (p-v) equity awards to top executives in large U.S. companies has grown from 20 to 70 percent from 1998 to 2012. We measure the effects of p-v provisions on value, delta, and vega of equity-based compensation. We find large differences in the value of p-v awards reported in company disclosures versus economic value. We also find that equity-based grants continue to convey significant compensation convexity (vega) after ASC 718 (2005) and that, counter to recent claims in the literature, our analysis empirically reaffirms the presence of a causal relation between compensation convexity (vega) and firm risk.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/d24750a092267a463c67f2f4052b6a7febce628f

Citations in the corpus

• Managerial Risk-Taking Incentive and Firm Innovation: Evidence from FAS 123R (2018, unknown): “Moreover, Bettis et al. (2016) document a significant reduction in total VEGA after the implementation of FAS 123R by counting both options and p-v grants, suggesting a decline in the managerial risk-taking incentive.”
• Executive Compensation: A Survey of Theory and Evidence (2017, unknown): “Bettis et al. (2016) nd that target performance levels are achieved for only 47% of grants, and 22 that performance provisions reduce the grant-date value of awards by 42% compared to similar grants without performance conditions.”