Investment opportunities and the structure of executive compensation

  title={Investment opportunities and the structure of executive compensation},
  author={William R. Baber and Surya N. Janakiraman and Sok-Hyon Kang},
We extend the contracting paradigm advanced in Smith and Watts (1992) to consider cross-sectional associations between investment opportunities and the sensitivity of C E O compensat ion to performance measures. We predict stronger associations between compensation and performance for firms with greater investment opportunities. We also predict greater use of market-based, rather than accounting-based, performance indicators as a basis for incentive payments when investment opportunities are… CONTINUE READING
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