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Duration of Executive Compensation
Author(s) -
GOPALAN RADHAKRISHNAN,
MILBOURN TODD,
SONG FENGHUA,
THAKOR ANJAN V.
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12085
Subject(s) - vesting , duration (music) , executive compensation , accrual , earnings , stock (firearms) , business , compensation (psychology) , economics , econometrics , accounting , finance , corporate governance , psychology , engineering , mechanical engineering , art , literature , psychoanalysis , visual arts
Extensive discussions on the inefficiencies of “short‐termism” in executive compensation notwithstanding, little is known empirically about the extent of such short‐termism. We develop a novel measure of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short‐term. We calculate pay duration in various industries and document its correlation with firm characteristics. Pay duration is longer in firms with more growth opportunities, more long‐term assets, greater R&D intensity, lower risk, and better recent stock performance. Longer CEO pay duration is negatively related to the extent of earnings‐increasing accruals.