Performance Pay and Catering Incentives

2018. Finance Research Letters. Volume 27, December 2018, Pages 12-22

Francisco Marcet O

Abstract:

This paper explores how boards of directors design executive compensation to cater to investor demand. Following the literature of catering incentives and using a comprehensive dataset of accounting performance goals, we show that boards tie compensation to accounting metrics (performance pay) according to market preferences. Moreover, powerful CEOs are less likely to be affected by investor demand associated with accounting metrics. Finally, our results are robust to alternative specifications and subsamples.

Palabras claves: Pay for performance, Accounting goals, Catering incentives

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