Motivated by the SEC’s proposal for requiring disclosure on “actually paid” executive compensation, we use hand-collected actual payout data from CEOs’ accounting performance-based incentive plans to evaluate the usefulness of such disclosure. We find that actual payouts contain...

We are the first to investigate what information is provided in “Compensation Actually Paid” (CAP) in the SEC’s newly required “Pay versus Performance Disclosure”. We find that change in stock price during the year explains a significant portion of the difference between CAP and total...

This paper provides an in-depth look into the properties of accounting numbers used in compensation contracts for S&P 500 firms from 2006 to 2017. Our data reveal wide variation in the accounting performance metrics used in compensation contracts, with some recent movement from bottom-line...

Motivated by the increasing importance of accounting return (ROA or ROIC) in firm decisions and compensation design, we study the effectiveness and implication of granting CEO incentives contingent on accounting-return (AR) metrics. We find that firms’ accounting return (AR) improves...

Insiders have private information and often disclose non-GAAP earnings metrics with the claim that such metrics inform investors about earnings persistence. However, because insiders have private information about earnings persistence, they have opportunities to take advantage of this...

It is often claimed that (i) managers work too hard on operational issues and do not spend enough effort on strategic activities and (ii) something can be done about this by introducing nonfinancial performance measures as for instance with a balanced scorecard. We give an explanation for both...

Building on archival, anecdotal, and survey evidence on managers׳ roles in accounting manipulations, I develop an agency model to examine the effects of a CEO׳s power to pressure a CFO to bias a performance measure, like earnings. This power has implications for incentive compensation,...

Baker (2002) has demonstrated theoretically that the quality of performance measures used in compensation contracts hinges on two characteristics: noise and distortion. These criteria, though, will only be useful in practice as long as the noise and distortion of a performance measure can be...

This paper argues that academics, politicians, and the media have six commonly held but misguided beliefs about corporate governance. While Armstrong, Guay, and Weber (2010) discuss some of these misconceptions, a wider recognition that these beliefs are actually “myths” is important. They...