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Until 2005, corporations could choose whether to expense incentive options or to disclose the value in the financial footnotes. During 2004, however, the Financial Accounting Standards Board adopted the revised Statement No. 123, which requires public corporations to measure the cost of stock options on grant‐date and expense that cost over the vesting period of the grant. This study investigates the impact of SFAS 123(R) on the type of executive incentive pay‐option versus restricted stock.

Comprehensive compensation data was collected from Standard & Poors ExecuComp data base for the period 2002‐2006 for two industries identified by SIC codes 73 (business services) and 35 (electronics). The study tracks the percentage of pay in the form of incentive stock options or restrictive stock grants before and after SFAS No. 123(R) was adopted in 2004. A series of multivariate regression models test whether the restricted stock percentage of total compensation can be partially explained by the adoption of SFAS 123(R).

The results show that the average fair value of stock awards is higher and the average fair value of option awards is lower after 2004. In addition, after 2004, stock compensation as a percentage of total pay is positively related to stock price volatility. The data also suggest that those companies substituting restricted stock for options actually increase total incentive pay.

The study's findings may suggest that those companies substituting restricted stock for options increase total executive pay. This would be a side effect from the adoption of SFAS 123(R), in that most companies use the Black‐Scholes model to value executive options. Given the long life of these options and the high volatility in certain industries the option value is quite high. Therefore, the amount of substituted restricted stock is also inflated.

The adoption of SFAS 123(R) was highly contested by executives in industries with high stock price volatility. The authors document that, in the case of two industries, executive incentive pay structure was affected.

The purpose of this paper is to examine if the structure and design of CEO compensation has any effect on firm innovation. It further investigates the effectiveness of each component of portfolio of compensation incentives in encouraging innovation.

This study uses systems of simultaneous equations to model the interdependence between compensation incentives and measures of firm innovation.

Results indicate that the pay‐performance sensitivity of the CEO portfolio of compensation incentives is positively related to investment in R&D expenditures, number of patents and citations. Options in general are more effective than stocks. However, within the options portfolio, recently awarded and unvested options are more effective than previously awarded and vested options. Restricted stock is more effective than unrestricted stock.

Measuring innovation output is difficult as innovation could take different forms, including business model innovation, which does not appear in the patent data.

Stock options encourage investment in value‐increasing innovations and should remain a significant part of managerial compensation. If the firm awards stock, it should only award restricted stock.

This study uses comprehensive measures of compensation incentives and firm innovation. It views incentives as a portfolio of stock and options and uses incentives in their entirety. It examines the effectiveness of each component of the portfolio in encouraging innovation. It measures innovation as investment into the innovation process (R&D expenditures) and the resulting success of that investment (patents and citations).

We investigate the impact of the creation of a new incentive structure for CEOs resulting from firms introducing equity-based compensation (EBC) as a means of paying top executives on policy decisions. Contrasting a firm’s stock and operating performance in the period the CEO is compensated with EBC (EBC period) and the period when EBC is not a component of the same executive’s pay (No EBC period) leads us to conclude that awarding stock options and restricted shares to executives is not associated with improved firm performance. However, firms initiate EBC after superior performance suggesting that CEOs are awarded compensation in this form as a reward for past performance. Firms have higher unsystematic and total risk levels in the EBC period suggesting EBC influences CEOs’ risk-taking behavior and reduces agency costs arising from managerial risk aversion. While there is no change in R&D expenses and cash ratios there is a decrease in capital expenditures in the EBC period, which is consistent with reduced overinvestment agency costs. Finally, leverage and payout ratios are similar in both periods implying that firms’ financing policy is not influenced by changes in CEOs’ compensation structure.

We investigate the relationship between chief executive officer (CEO) compensation and a firm's financial performance in the insurance industry to determine CEO pay policies that are more effective in promoting specific financial corporate goals.

Considering different components of executive pay, we investigate the latter’s relationship with the corporate performance of the insurance industry using the generalized method of moments (GMM) model developed for dynamic panel estimation. Our data encompasses the periods before and after the 2008 financial crisis.

We observe that after the crisis the insurance industry experienced a major change in executives’ compensation packages. While CEOs’ compensation was primarily based on bonuses pre-crisis, the average size of the bonus was reduced to one-third of the level, stock awards and nonequity incentives were doubled and option awards increased almost 70 percent in the post-crisis period. It is also evident that the work experience of CEOs and the firm's financial performance play a significant role in determining CEO compensation. As the CEO becomes more experienced, stock awards and option awards replace cash bonus.

The paper finds supporting evidence for the agency-related problem in the insurance industry and the convergence of interest hypothesis, suggesting that a firm's market valuation rises as its managers own an increasingly large portion of the firm. To align the interest of owners with that of management, managers should be converted into owners via stock ownership. The paper addresses a topical issue regarding pay and performance and the effect of the financial crisis in the insurance industry.

This study aims to examine the impact of corporate social responsibility (CSR) awards on firms’ market value considering these awards as a signal and proxy for the effectiveness of CSR practice.

There are 342 announcements of CSR awards in China from 2006 to 2017 screened and analyzed using the event study methodology.

The stock market reacts significantly negatively to CSR award announcements in the short term. Firms that are state-owned, belong to the manufacturing industry, outside east China, repeatedly win awards and are listed in the Chinese H-share market, experience a stronger stock market reaction. Interestingly, the long-term stock returns of award winners are significantly positive for multiyear holding periods.

The findings offer stakeholders clear guidelines on how to manage communications in the market to extract enhanced financial performance from CSR award announcements.

This study chooses CSR awards as a proxy for the effectiveness of excellent CSR practice. This study also contributes to the CSR literature by analyzing how investors use the award information to make investment decisions.

Agency theoretic models have been used in the past to justify the use of stock options as an effective incentive alignment mechanism to create a common fate between principals and agents. In this paper, we use behavioral theory to reach the opposite conclusion – namely, that the design characteristics of the typical stock option plan foster perverse incentives for loss‐averse agents, leading to decisions with detrimental consequences for principals. We also consider alternative stock option designs and other equity‐based executive compensation plans and argue that they may suffer from the same problems as traditional stock option plans – namely, that loss‐averse executives will try to protect the endowed value of that equity through self‐serving decisions that do not enhance shareholder wealth.

The purpose of this paper is to provide new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs.

This paper uses coarsened exact matching and propensity score matching to match the dual-class firm sample with a control group of single-class firms. This study uses matching estimators to provide an analysis of how a dual-class structure affects the design of performance measures in performance-based stock awards. In addition, regression models are used to investigate the effect of a dual-class structure on performance measure choices.

This paper finds that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, peer-based measures are much less common for dual-class than single-class firms. This study also finds that the length of the CEO’s performance evaluation period does not differ between dual-class and single-class firms.

This paper attempts to investigate the choice of performance measures to find out the extent to which the board of directors focuses CEO efforts on firms’ long-term versus short-term objectives.

The findings reveal the relationships between the dual-class stock structure and the contractual features of CEO performance-based stock awards, provide empirical evidence for the company’s compensation committee and provide implications for the evolving practices of performance measures regarding CEO stock compensation. The findings are also useful to regulators, compensation consultants and firms pursuing efficient design of executive compensation.

This paper is among the first to study the determinants of compensation contracts. Second, prior literature seldom controls for CEO stock ownership, but this study matches dual-class firms to a control group of single-class firms that are similar in terms of CEO stock ownership and other important firm characteristics. Finally, these findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.

Employee Stock Options are the most widely used incentive compensation tool, and prior research has shown their advantages. However, research among different peer groups, different time frames, different research methodologies, and the constantly changing public opinion prevents unanimous agreements on the various benefits of Employee Stock Options. In this paper we apply a number of research hypotheses tested in recent US studies to a European sample of EuroStoxx 50 companies. Due to the globalisation, the similar accounting regulations and the IT and telecommunications revolu tions, Europe and the United States have grown closer together than ever before and are expected to display similar business practices. This assessment should be especially relevant for the large European companies, which mostly have a dual listing in the United States and are therefore essentially forced to manage according to American practices. How ever, the results differ significantly from the existing US research, providing insufficient grounds to accept previous findings for European companies.

Prior research has documented that managers take opportunistic timing activities to influence the exercise prices of executive stock options (ESOs). This paper aims to add to the literature by investigating whether such behavior is mitigated by the exercise price regulation of China.

Using a sample of 132 ESO reports between 2006 and 2010 in China, the authors explore whether the regulation takes effect by examining stock price movements and companies' information disclosures around the report dates.

Consistent with the conjecture that the regulation could not effectively limit managers' opportunistic behavior, the authors find that the abnormal returns decrease slowly until ten trading days before the report dates, increase gradually subsequently, and rise dramatically just after the report dates. Particularly, the return pattern is more pronounced when corporate governance is weaker. The authors also find that managers opportunistically time ESO reports based on their private information. In particular, more (less) favorable (negative) news announcements occur after the report dates than beforehand. Additionally, compared to earnings announcements, managers prefer to time ESO reports with information about forward‐looking earnings and security issuances.

These results suggest that the regulation could not effectively constrain managers from influencing the exercise prices. The paper also provides evidence that imperfect regulations under asymmetric information may lead to additional agency costs, especially when corporate governance is weak. The authors' findings can contribute to the improvement of regulations on ESOs.