The market reaction to changes in compensation contracts: a review of the evidence

Article Abstract:

Positive stock returns almost always result whenever there are changes in executive compensation agreements. However, the possibility of detecting the exact market reaction to compensation changes remains elusive due to existence of several studies that have varying results. One aspect that remains unfounded is the establishment of relationship between adoption of incentive plan and the high performance levels of managers. Aspects that can be studied to establish a definitive relationship between market reaction and compensation changes include compensation events that have strong effect on managerial incentives and ex post changes in managerial decisions.

Stock Options, Bonus & Merit Payments, Models, Employee incentives, Compensation management, Bonuses

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Valuation of executive stock options

Article Abstract:

A formulation of an executive stock option (ESO) model which can be used to determine its appropriate value is presented. The study compares the features of other option pricing models such as Black and Scholes, Whaley, and Cox, Ross, and Rubenstein with ESO contract features such as non-transferability, vesting restrictions and its hybrid nature. The study, which uses some assumptions in the model formulation, concludes that ESO's hybrid feature is more significant in its value determination.

Evaluation

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Effect of risk on the use of performance-contingent compensation

Article Abstract:

The impact of performance-contingent compensation on the integration of management incentives with shareholder interests is examined. Risk, outsider presence in the board of directors and stock ownership are also evaluated for their effect on the pay-performance relation. Corporations with highly variable returns exhibited weak linkage between CEO compensation package and corporate performance.

Economic aspects, Merit pay

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