Compensation Policy and the Investment Opportunity Set
We analyze the proportions of executive pay derived from salary, bonus, long-term incentive compensation, and stock-based compensation for a sample of 321 Fortune 1,000 firms in 1992. We find that firms with abundant investment opportunities pay higher levels of total compensation to their executives. Executives of growth firms receive a larger portion of their compensation from long-term incentive compensation (such as performance awards, restricted stock grants, and stock option grants), while those of non-growth firms receive a larger portion of their pay from fixed salary. An implication is that long-term incentives contracts reduce agency costs associated with manager-shareholder information asymmetries in growth firms.
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Volume (Year): 24 (1995)
Issue (Month): 1 (Spring)
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