The Choice of Performance Measures in Performance-Vested Equity Compensation

• In Event: Management Accounting 1

Abstract

This paper examines the choice of performance measure in performance-vested (p-v) equity compensation. Based on a sample of S&P 500 firms that granted p-v equity compensation to executives between 2006 and 2008, this paper shows that p-v equity compensation is very distinctive from annual bonus in the types and numbers of performance measures choice to evaluate executive performance. Consistent with the Informativeness Hypothesis, the likelihood of a performance measure’s usage in p-v equity compensation decreases with its relative nosiness. This paper find that past performance, business complexity and growth potentials are also associated with the choice of performance measures. The results are robust in the cluster analysis and after controlling for the decisions to adopt p-v equity compensation and the industry effects.

Author

• Wan-ting Wu, University of Massachusetts-Boston