Cash versus share payouts in relative performance plans

Timmermans, Oscar ORCID: 0000-0003-2220-0057 (2024) Cash versus share payouts in relative performance plans. Accounting Review, 99 (6). 451 - 489. ISSN 0001-4826

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Abstract

This study examines the risk taking properties associated with incentive plans that use relative performance evaluation, with a focus on the form of payout, whether in cash or shares. By analyzing determinants and consequences of payout form choice, I find that share-based plans offer risk-averse managers weaker incentives to pursue projects with idiosyncratic risk compared with cash plans. This occurs because share plans-unlike cash plans-expose managers to systematic performance trends, as payout values are linked to stock prices. Additionally, I document that the variation in risk taking incentives depends on expected relative performance and the strength of the incentives. Overall, this study's findings suggest that commonly used share-based relative performance plans might not always motivate managers to pursue innovative projects with high idiosyncratic risk when projects with systematic risk are available.

Item Type:	Article
Official URL:	https://aaahq.org/Research/Journals/The-Accounting...
Additional Information:	© 2024 American Accounting Association
Divisions:	Accounting
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HF Commerce > HF5601 Accounting
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages; Payment Methods M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M12 - Personnel Management M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
Date Deposited:	29 May 2024 15:00
Last Modified:	20 Dec 2024 00:54
URI:	http://eprints.lse.ac.uk/id/eprint/123696

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