Stewardship value of earnings components: additional evidence on the determinants of executive compensation
Article Abstract:
The stewardship role of earnings components in compensation contracts of chief executives is examined. The study uses CEO compensation data from the annual survey of Forbes magazine from 1970 to 1988 as well as balance sheet and income statement data from the Annual Industrial Compustat. Results show that earnings and cash flow measures together are more related to CEO cash compensation than aggregate earnings alone. The findings also demonstrate that aggregation of current accruals and cash flows from operations is done for performance evaluation. Stewardship value measures are related to cross-sectional variation in the weights attached to earnings and working capital from operations. This finding supports the view that, aside from information from earnings, shareholders also use information contained in working capital from operations when developing executive compensation contracts.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1996
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The relation between nonrecurring accounting transactions and CEO cash compensation
Article Abstract:
Cash compensation and above the line earnings have a significantly positive relationship when corporate performance is positive. Above the line losses, on the other hand, do not have any effect on compensation. This was revealed in an examination of the relation between accounting earnings and the cash compensation of CEOs, which pertains to base salary plus annual bonus. Findings also showed that while nonrecurring transactions that increase income flow through completely to compensation, nonrecurring losses are not part of the earnings equation used to determine CEO cash compensation. This is true for extraordinary transactions, discontinued operations and unusual gains that do not qualify as below the line treatment. The classification of the gain or loss in the income statement is not a significant factor in compensation decisions.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1998
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The stock market reaction to performance plan adoptions
Article Abstract:
The impact of the adoption of performance-based executive compensation agreements on the share prices of firms that adopt performance plans is examined. A sample of 283 firms that adopted such plans is used to analyze the stock market's reaction. The results indicate that performance plan adoption does not significantly alter share prices as the adoption of performance-based compensation agreements is not viewed by market participants as a reliable indicator of improved managerial performance.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1992
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