Journal article

The Influence of CEO Power on Compensation Contract Design

Margaret A Abernethy, Yu Flora Kuang, Bo Qin

ACCOUNTING REVIEW | AMER ACCOUNTING ASSOC | Published : 2015

Abstract

We investigate whether CEO power influences a firm's decision to change its compensation system in response to regulatory and public pressure. In particular, we assess whether CEO power influences the choice of performance measures as a form of camouflage to minimize the impact of these reforms on their wealth. We examine one component of CEO pay, namely, the use of performance-vested stock option (PVSO) plans, and find that firms with powerful CEOs attach less challenging targets in the initial PVSOs granted to their CEOs. Such firms also appear to adopt PVSO plans early, and are more likely to do so when faced with public outrage over executive compensation. Our results suggest that powerf..

View full abstract

Grants

Funding Acknowledgements

We gratefully acknowledge the insightful comments from two anonymous reviewers and Kenneth A. Merchant (editor), as well as those from numerous colleagues: Shannon Anderson, Raul Barroso (discussant), Belen Blanco, Shuping Chen, Henri Dekker, Yanmin Gao (discussant), Wayne Guay, Michelle Hogan, Reggy Hooghiemstra, Yuping Jia, Steven Matsunaga, Valeri Nikolaev, Naomi Soderstrom, Laurence van Lent, and Sarah Zechman. We also thank conference and seminar participants at the 2013 36th Annual Congress European Accounting Association at Paris, 2013 8th Accounting Research Workshop at Basel, Erasmus University Rotterdam, University of Groningen, VU University Amsterdam, University of Amsterdam, The University of Melbourne, and University of Seville for comments on previous drafts of the paper. We also thank VU University Amsterdam and University of Amsterdam for their support for the project while Yu Flora Kuang and Bo Qin, respectively, were employed there.