Realized Pay and Exercise Behavior of Executive Stock Options?
Su-Chen Hsu/Texas Instruments Incorporated
Shu-Ling Wu/Department of Accounting, National Taiwan University
Abstract
After Say on Pay regulations, increasing amounts of companies have begun to voluntarily provide “Realized Pay” information in the executive compensation disclosures. Prior literature has argued that companies have incentives to report a lower level of “Realized Pay” to facilitate their explanation on the pay versus performance relation. Because the value of stock option exercise is an essential component of executive’s realized pay, this study investigates whether top management reduces their stock option exercises during the years in which the companies report realized pay in their compensation disclosures. We find that compared with executives in firms that have not disclosed realized pays, executives in firms that have disclosed realized pays are more likely to reduce stock option exercises. The results suggest that managers manipulate the reported realized pay by decreasing the stock option exercises. Besides, this paper finds that when compensation consultant of the company is not independent, the positive relation between realized pay disclosure and the likelihood of reducing stock option exercises is stronger. The results suggest that dependent compensation consultants might facilitate this opportunistic disclosure practices.
Keywords
Realized payPay versus performanceStock option exercise
33 Views 3 Downloads