Explicit Relative Performance Evaluation in Performance-Vested Equity Grants

Loading...
Thumbnail Image
Penn collection
Accounting Papers
Degree type
Discipline
Subject
restricted stock grant
equity plan
dividend playout ratio
stock option grant
compensation risk
RPE
equity-based pay
dividend yield
executive compensation contract
equity incentive
institutional investor
stock return volatility
London stock exchange
stock market performance
share price performance
Accounting
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Carter, Mary Ellen
Ittner, Christopher D
Zechman, Sarah L. C.
Contributor
Abstract

Using data from FTSE 350 firms, we examine factors influencing explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide exploratory evidence on whether the use or characteristics of RPE are associated with efforts to improve incentives by removing common risk, other economic factors discussed in the RPE literature, or external pressure to implement RPE. We find that many of these economic factors, including common risk reduction, are more closely related to specific relative performance conditions than to the firm-level decision to use RPE in some or all of their equity grants. We also find that greater external monitoring by institutional investors or others is associated with plans with tougher overall RPE conditions. The relative performance conditions are binding in most RPE plans, with nearly two-thirds of the grants vesting only partially or not vesting at all. Further, we find evidence that vesting percentages vary in RPE and non-RPE plans.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2009-09-01
Journal title
Review of Accounting Studies
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection