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Relative Performance Evaluation and the Use of Discretionary Bonuses in Executive Compensation

abstract: In this study, I examine the extent to which firms rely on relative performance evaluation (RPE) when setting executive compensation. In particular, I examine whether firms use information about peer performance to determine compensation at the end of the year, i.e. after both firm and peer performance are observed. I find that RPE is most pronounced for firms that allow little or no scope for ex post subjective adjustments to annual bonuses. Conversely, firms that rely mainly on subjectivity in determining bonus exhibit little use of RPE. These findings suggest that information about peer performance is not used at the end of the year. Instead, peer performance seems to be incorporated in performance targets at the beginning of the year, at least among firms primarily using objective performance measurements. In addition, I provide new evidence on the determinants of the use of subjectivity. / Dissertation/Thesis / Ph.D. Accountancy 2013

Identiferoai:union.ndltd.org:asu.edu/item:17927
Date January 2013
ContributorsTsui, Stephanie Aian (Author), Matejka, Michal (Advisor), Hwang, Yuhchang (Committee member), Kaplan, Steven (Committee member), Arizona State University (Publisher)
Source SetsArizona State University
LanguageEnglish
Detected LanguageEnglish
TypeDoctoral Dissertation
Format47 pages
Rightshttp://rightsstatements.org/vocab/InC/1.0/, All Rights Reserved

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