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 | |
| State | Published - Oct 2006 |
| Externally published | Yes |
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Keywords
- Contracting
- Ex post settling up
- Management compensation
- Pay-performance sensitivity
ASJC Scopus subject areas
- Accounting
- Economics and Econometrics
- Finance
Cite this
Asymmetric sensitivity of CEO cash compensation to stock returns. / Leone, Andrew; Wu, Joanna Shuang; Zimmerman, Jerold L.
In: Journal of Accounting and Economics, Vol. 42, No. 1-2, 10.2006, p. 167-192.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Asymmetric sensitivity of CEO cash compensation to stock returns
AU - Leone, Andrew
AU - Wu, Joanna Shuang
AU - Zimmerman, Jerold L.
PY - 2006/10
Y1 - 2006/10
N2 - 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.
AB - 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.
KW - Contracting
KW - Ex post settling up
KW - Management compensation
KW - Pay-performance sensitivity
UR - http://www.scopus.com/inward/record.url?scp=33746882135&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33746882135&partnerID=8YFLogxK
U2 - 10.1016/j.jacceco.2006.04.001
DO - 10.1016/j.jacceco.2006.04.001
M3 - Article
VL - 42
SP - 167
EP - 192
JO - Journal of Accounting and Economics
JF - Journal of Accounting and Economics
SN - 0165-4101
IS - 1-2
ER -