Factors Associated with the Use of Long‐Term Earnings and Market‐Based Compensation Plans
- Resource Type
- Authors
- Krishna R. Kumar
- Source
- Managerial Finance. 23:40-55
- Subject
- Market based
Finance
Actuarial science
Earnings
business.industry
Business, Management and Accounting (miscellaneous)
Incentive alignment
Business
Term (time)
Compensation (engineering)
- Language
- ISSN
- 0307-4358
Factors associated with the use of long‐term plans in management compensation contracts and the choice between earnings‐based performance plans and market‐based long‐term plans are examined. Results indicate the firms using long‐term plans are large, have diffuse ownership and more long‐term growth. Furthermore, performance plans are more likely to be used when stock‐return variability is high relative to earnings variability. Firms using performance plans are also larger and have more diffuse ownership than firms with market‐based plans alone. Overall, the evidence is consistent with long‐term plans serving as incentive alignment mechanisms.