On the valuation and incentive effects of executive cash bonus contracts

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• dc.contributor.author Martellini, Lionelca
• dc.contributor.author Urosevic, Brankoca
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2017-07-26T12:07:52Z
• dc.date.available 2017-07-26T12:07:52Z
• dc.date.issued 2003-12-01
• dc.date.modified 2017-07-23T02:08:48Z
• dc.description.abstract Executive compensation packages are often valued in an inconsistent manner: while employee stock options (ESOs) are typically valued ex-ante, cash bonuses are valued ex-post. This renders the existing valuation models of employee compensation packages theoretically unsatisfactory and, potentially, empirically distortive. In this paper, we propose an option-based framework for ex-ante valuation of cash bonus contracts. After obtaining closed-form expressions for ex-ante values of several frequently used types of bonus contracts, we utilize them to explore the e¤ects that the shape of a bonus contract has on the executive s attitude toward risk-taking. We, also, study pay-performance sensitivity of such contracts. We show that the terms of a bonus contract can dramatically impact both risk-taking behavior as well as pay-performance incentives. Several testable predictions are made, and venues of future research outlined.
• dc.format.mimetype application/pdfca
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=784
• dc.identifier.citation Managerial Finance, Vol. 31, No. 7. (July 2005), pp. 27-53
• dc.identifier.uri http://hdl.handle.net/10230/620
• dc.language.iso eng
• dc.relation.ispartofseries Economics and Business Working Papers Series; 784
• dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword executive compensation
• dc.subject.keyword cash bonus
• dc.subject.keyword incentives
• dc.subject.keyword risk-taking behavior
• dc.subject.keyword Finance and Accounting
• dc.title On the valuation and incentive effects of executive cash bonus contractsca
• dc.type info:eu-repo/semantics/workingPaper