Abstract
Using a large dataset of performance goals employed in executive incentive contracts
<br/>we find that a disproportionately large number of firms exceed their goals by a small
<br/>margin as compared to the number that fall short of the goal by a similar margin. This
<br/>asymmetry is particularly acute for earnings and profit goals, when compensation is
<br/>contingent on a single goal and is present for both long-term and short-term goals, when
<br/>the pay-for-performance relationship is concave or convex and for grants with cash or
<br/>stock payout. Firms that exceed their compensation target by a small margin are more
<br/>likely to beat the target the next period and CEOs of firms that miss their targets are
<br/>more likely to experience a forced turnover. Firms that just exceed their EPS goals have
<br/>higher abnormal accruals and lower Research and Development (R&D) expenditures
<br/>and firms that just exceed their profit goals have lower SG&A expenditures. Overall,
<br/>our results highlight some of the costs of linking managerial compensation to specific
<br/>compensation targets.
Originalsprache | Englisch |
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Publikationsstatus | Veröffentlicht - 1 Sept. 2015 |