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Executive Bonus Target Ratcheting: Evidence from the New Executive Compensation Disclosure Rules
Author(s) -
Kim Sunyoung,
Shin Jae Yong
Publication year - 2017
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12350
Subject(s) - executive compensation , ratchet , commission , equity (law) , accounting , incentive , sample (material) , compensation (psychology) , business , economics , microeconomics , finance , management , psychology , political science , law , social psychology , chemistry , chromatography , chaotic
This study investigates whether firms revise executive bonus compensation targets based on past performance. Studies in this area suffer from a lack of detailed information related to executive performance targets. Using mandatory disclosures of executive compensation information under the U.S. Securities and Exchange Commission's new disclosure rules, this study provides the first large‐sample evidence of bonus target ratcheting. There are three major findings: (i) executive bonus targets ratchet and they ratchet asymmetrically; (ii) the degree of target ratcheting and ratcheting asymmetry vary with executive equity incentives and investment opportunities; and (iii) performance relative to bonus target is serially correlated.