Duration of Executive Compensation

Authors

Radhakrishnan Gopalan, Washington University in St. Louis - John M. Olin Business SchoolFollow
Todd T. Milbourn, Southern Methodist University (SMU) - SMU Cox School of BusinessFollow
Fenghua Song, Pennsylvania State University - Smeal College of BusinessFollow
Anjan V. Thakor, Washington University in St. Louis - John M. Olin Business School; Financial Theory Group; European Corporate Governance Institute (ECGI); Massachusetts Institute of Technology (MIT) - Laboratory for Financial EngineeringFollow

Publication Date

12-18-2012

Abstract

Extensive discussions of the inefficiencies of "short-termism" in executive compensation notwithstanding, very little is known empirically about the extent of such short-termism. This paper develops a novel measure of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short-term. Using this measure, we calculate executive pay duration in various industries and document correlations between executive pay duration and a host of firm characteristics. Pay duration is longer in firms with more growth opportunities, more long-term assets, greater R&D intensity, in less risky firms and in firms with better recent stock performance. Longer CEO pay duration is also negatively related to the extent of earnings increasing accruals.

Document Type

Article

Keywords

executive compensation, vesting, duration, managerial myopia, corporate governance

Disciplines

Finance

Source

SMU Cox: Finance (Topic)

Language

English