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Long-Term Incentive Design and Firm Performance

Author

Listed:
  • Liana Bomm

    (Paderborn University)

Abstract

Executive compensation increasingly relies on long-term incentives (LTIs) to align managerial decision-making with firms' long-term objectives. Prior research provides mixed evidence on the relationship between LTIs and firm performance, with most studies relying on aggregate measures of long-term incentives. Using panel data on executives from 80 German DAX and MDAX firms covering the period 2006–2021, this study employs fixed-effects panel regressions to distinguish between equity- and cash-based LTIs, examine the relative weighting of LTIs within executive compensation, and analyze differences across organizational contexts proxied by compensation regimes. The results reveal systematically different relationships between equity- and cash-based LTIs across accounting- and market-based performance measures and across different time horizons. The relative weighting of LTIs provides information beyond compensation levels, and the relationships between executive incentive structures and firm performance vary across organizational contexts. Overall, the findings demonstrate the importance of moving beyond aggregate measures toward a more differentiated understanding of executive incentive design by jointly considering the form of long-term incentives, their relative weighting within the overall compensation package, and the organizational context in which they operate.

Suggested Citation

  • Liana Bomm, 2026. "Long-Term Incentive Design and Firm Performance," Working Papers Dissertations 181, Paderborn University, Faculty of Business Administration and Economics.
    • Handle: RePEc:pdn:dispap:181
    as

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    File URL: https://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/dispap/DP181.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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