 Are more able CEOs getting more compensated? Evidence from the pay-for-performance sensitivity of equity-based incentivesHuiqi Gan and Myung Seok Park Advances in accounting, 2016, vol. 34, issue C, 64-76 Abstract: This study investigates whether the managerial ability of a chief executive officer (CEO) is associated with the CEO's pay-for-performance sensitivity (PPS) of the equity-based compensation. We predict that more talented CEOs receive a higher PPS of equity incentives. Using the managerial ability score (Demerjian, Lev, & McVay, 2012) and PPS measures of options and stocks (Core & Guay, 1999), we find that a CEO's PPS of the equity-based compensation is significantly increasing in the CEO's ability. We also find that the association between managerial ability and the PPS of stock incentives is more evident for small firms. Furthermore, our results show that high ability CEOs are associated with a steeper PPS of option incentives, especially when they are not near retirement. Together, our findings suggest that firms generally incorporate the relative efficiency factor of CEO's ability in designing the CEO's equity-based compensation contracts, and thus the cross-sectional variation in the CEO's PPS is positively influenced by the CEO's ability. Keywords: Managerial ability; Pay-for-performance sensitivity; Equity incentives; Career concerns (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:34:y:2016:i:c:p:64-76 DOI: 10.1016/j.adiac.2016.07.008 Access Statistics for this article Advances in accounting is currently edited by Dennis Caplan More articles in Advances in accounting from Elsevier |
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