The discussion on value-based performance measures is centered around the concept of residual income. The main property of residual income is its connection to capital budgeting and the net-present-value-rule. This property is, however, not sufficient to guarantee strong goal congruence between...

We introduce a model that captures the main properties that characterize employee stock options (ESO), in particular, the likelihood of early voluntary exercise and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which...

We experimentally examine how employees' employment horizons (long or short) and the performance measures in their incentive contracts (forward-looking or contemporaneous) affect employee effort allocation and performance. Consistent with economic theory, we find that the decision-influencing...

Using data from FTSE 350 firms, we examine factors influencing explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide exploratory evidence on whether the use or characteristics of RPE are associated with efforts to improve incentives by removing...

Using data from FTSE 350 firms, we examine the factors influencing the explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide evidence on the use of RPE either to improve incentives by removing common risk or by linking greater vesting...

We gather data from 77 current mid-level managers and 111 future entry-level managers, to investigate how they value stock options and restricted stock. We refer to our current and future manager groups collectively as quot;managers.quot; We supplement our manager data with a dozen field...

According to the Revised FAS Statement No. 123 issued on December 16, 2004, (FAS123R) the accounting treatment of employee stock options (ESOs) for U.S. companies will be radically different in the near future. Although, FAS 123R does not specify a particular valuation technique as preferable,...

This paper examines the issues and controversies over the question of whether executive stock options should be expensed and, if so, how option values should be determined. It identifies and clarifies the key questions and surveys and synthesizes the academic and trade literature. Illustrations...

We study the role of peer groups in determining the structure and the total amount of executive compensation. Our analysis is based on a standard agency model in which the agent's reservation utility is related to the peer group used for performance evaluation. Our main result is that the...

Economic theory suggests that there are complementarities between the various components of a firm's organizational design (Milgrom and Roberts (1992)). With the exception of Nagar (2002) which examines the joint determination of two components of the management control system, incentive...