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The timing of changes in CEO compensation from cash bonus to equity-based compensation: Determinants and performance consequences

Author

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  • Matolcsy, Zoltan
  • Shan, Yaowen
  • Seethamraju, Vinay
Abstract
This study examines the determinants and performance consequences of changes in CEO compensation structure. The study uses the unique setting when Australian companies have changed from cash bonus to equity-based compensation. While most US CEOs receive some form of equity-based compensation, Australian CEOs have not always been paid equity-based compensation. According to efficient contracting theories, we argue that the change to equity-based compensation is driven by changes in firm characteristics and by the occurrence of CEO turnover, the latter of which provides a less costly opportunity for such change. Our results are consistent with the above arguments. We also document a significant negative association between changes in compensation structure and subsequent firm performance in the following year, even after controlling for CEO turnover and poor governance environments. Overall, our results suggest that the initial change to equity-based compensation is part of an error learning process made by firms that leads them towards efficient CEO compensation contracts.

Suggested Citation

  • Matolcsy, Zoltan & Shan, Yaowen & Seethamraju, Vinay, 2012. "The timing of changes in CEO compensation from cash bonus to equity-based compensation: Determinants and performance consequences," Journal of Contemporary Accounting and Economics, Elsevier, vol. 8(2), pages 78-91.
    • Handle: RePEc:eee:jocaae:v:8:y:2012:i:2:p:78-91
    DOI: 10.1016/j.jcae.2012.06.002
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    7. Bouras Mehdi & Gallali Mohamed Imen, 2014. "The Determinants Of Equity Based Compensation: A Bidimensional Validity Of The Agency Theory," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(2), pages 117-145.
    8. Xin Qu & Daifei Yao & Majella Percy, 2020. "How the Design of CEO Equity-Based Compensation can Lead to Lower Audit Fees: Evidence from Australia," Journal of Business Ethics, Springer, vol. 163(2), pages 281-308, May.
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