Do compensation plans with performance targets provide better incentives?Helena Pinto and Martin Widdicks Journal of Corporate Finance, 2014, vol. 29, issue C, 662-694 Abstract: Guided by academic literature, industry practice and policy recommendations, we analyze a wide range of option and restricted stock plans with exercise and vesting conditions that may be contingent on stock price performance. To assess the effectiveness of these plans at attracting and providing incentives to executives, we create compensation plans with fixed firm cost and executive valuation and calculate their expected total lifetime incentives. We show that performance vesting targets provide the least cost effective incentives, performance exercise targets provide the largest risk incentives, option plans are generally superior to restricted stock plans, and calendar vesting is only efficient up to a maximum of three years. Performance exercise targets can increase the expected total lifetime incentives provided by compensation plans, but in general, standard options with short vesting periods provide the most cost effective pay-for-performance incentives. Keywords: Executive compensation; Performance target plans; Incentives; Restricted stock; Options (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:29:y:2014:i:c:p:662-694 DOI: 10.1016/j.jcorpfin.2014.03.005 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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