Accounting Papers

Document Type

Journal Article

Date of this Version

9-2009

Publication Source

Review of Accounting Studies

Volume

14

Issue

2

Start Page

269

Last Page

306

DOI

10.1007/s11142-009-9085-8

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.

Keywords

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

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Date Posted: 27 November 2017

This document has been peer reviewed.