Asymmetric sensitivity of CEO cash compensation to stock returns

Andrew J. Leone; Joanna Shuang Wu; Jerold L. Zimmerman

doi:10.1016/j.jacceco.2006.04.001

Asymmetric sensitivity of CEO cash compensation to stock returns

Andrew J. Leone, Joanna Shuang Wu, Jerold L. Zimmerman

Accounting

Research output: Contribution to journal › Article

113 Scopus citations

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)
Pages (from-to)	167-192
Number of pages	26
Journal	Journal of Accounting and Economics
Volume	42
Issue number	1-2
DOIs	https://doi.org/10.1016/j.jacceco.2006.04.001
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

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10.1016/j.jacceco.2006.04.001

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Leone, A. J., Wu, J. S., & Zimmerman, J. L. (2006). Asymmetric sensitivity of CEO cash compensation to stock returns. Journal of Accounting and Economics, 42(1-2), 167-192. https://doi.org/10.1016/j.jacceco.2006.04.001

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