Abstract
The usage of performance vesting (p-v) equity awards to top executives in large US companies has grown from 20 to 70 percent from 1998 to 2012. We assess the implications of these increasingly complex awards by examining the accuracy of and biases in disclosure and the connection between the structure of executive pay, risk-taking incentives, and firm risk. To do so, we develop and implement new methods that empirically quantify the significant effects of p-v provisions on the value, delta, and vega of equity-based compensation. We find large biases in the value of executive compensation reported in company disclosures. The elasticity of reported value in economic value is far less than one, with additional bias downward (upward) for large institutional ownership (when the firm uses a high-market-share compensation consultant). Our analysis empirically reaffirms the presence of a causal relation in both the time series and cross section between compensation convexity and firm risk.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
