Abstract
We document that CEO cash compensation is twice as sensitive to negative stock returns as it is to positive stock returns. Since stock returns include both unrealized gains and unrealized losses, we expect cash compensation to be less sensitive to stock returns when returns contain unrealized gains (positive returns) than when returns contain unrealized losses (negative returns). This is consistent with boards of directors exercising discretion to reduce costly ex post settling up in cash compensation paid to CEOs.
Original language | English (US) |
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Pages (from-to) | 167-192 |
Number of pages | 26 |
Journal | Journal of Accounting and Economics |
Volume | 42 |
Issue number | 1-2 |
DOIs | |
State | Published - Oct 1 2006 |
Keywords
- Contracting
- Ex post settling up
- Management compensation
- Pay-performance sensitivity
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics