Shareholders' use of proxy statement disclosures to evaluate
executive pay
a
I
a
Brian Cadman , Richard Carrizosa , Xiaoxia Peng
a David
a
Eccles School of Business, University of Utah
Abstract
Proxy statements have reported two measures of annual equity compensation: the grant
date fair value and the ASC 718 expense. We examine how investors use equity compensation disclosures in proxy statements to evaluate CEO equity compensation schemes, and the
contracting consequences of disclosure regulation changes. We nd that both the grant date
fair value and ASC 718 expense provide unique information that investors use to evaluate
executive compensation schemes. We also nd that investors do not change their use of the
grant date fair value after the Proxy Disclosure Enhancements rule adopted in 2009 removed
equity compensation expense disclosures from proxy statements. However, we nd that rms
change contracting schemes in response to changes in required disclosures. Our results provide insights into how shareholders incorporate compensation disclosures when participating
in corporate governance, and informs current deliberations by the SEC regarding a proposal
to require additional equity compensation disclosures.
Keywords:
Proxy Statement Disclosure, Equity Compensation, Proxy Statement Voting,
Equity Compensation, Corporate Governance
I
We thank workshop participants at Washington University in St. Louis, and Elia Ferracuti and Arthur
Morris for research assistance.
Email addresses: [email protected] (Brian Cadman),
[email protected] (Richard Carrizosa), [email protected]
(Xiaoxia Peng)
October 2015
Shareholders' use of proxy statement disclosures to evaluate executive pay
Abstract
Proxy statements have reported two measures of annual equity compensation:
the grant
date fair value and the ASC 718 expense. We examine how investors use equity compensation disclosures in proxy statements to evaluate CEO equity compensation schemes, and the
contracting consequences of disclosure regulation changes. We nd that both the grant date
fair value and ASC 718 expense provide unique information that investors use to evaluate
executive compensation schemes. We also nd that investors do not change their use of the
grant date fair value after the Proxy Disclosure Enhancements rule adopted in 2009 removed
equity compensation expense disclosures from proxy statements. However, we nd that rms
change contracting schemes in response to changes in required disclosures. Our results provide insights into how shareholders incorporate compensation disclosures when participating
in corporate governance, and informs current deliberations by the SEC regarding a proposal
to require additional equity compensation disclosures.
1
1. Introduction
Investors rely on compensation disclosures to evaluate and inuence the design of executive compensation packages (Armstrong et al. [2013], Ertimur et al. [2011], Cai and Walkling
[2011], SEC [1992]).
These disclosures are regulated by the SEC and have been modied
over time with the aim of improving shareholders' ability to monitor executive compensation. Disagreement among various constituents regarding the measurement and disclosure
of annual equity compensation has resulted in multiple changes to compensation disclosure
requirements.
We examine how investors use compensation disclosures reported in proxy
statements to evaluate executive equity compensation schemes, and the contracting consequences of changes in the required disclosures.
Equity-based compensation is often the most signicant element of annual compensation.
Indeed, much of the prior research on the relation between pay and performance either
focuses on the grant date fair value of equity compensation (Jensen and Murphy [1990]), or
the sensitivity of equity holdings to changes in stock price (Core and Guay [1999]). Proxy
statements have reported two measures of equity compensation: the ASC 718 equity expense
and the grant date fair value of annual equity grants (SEC [2009, 2006]). These methods
dier on several dimensions.
ASC 718 (formerly FAS 123R) requires rms to recognize
the annual equity compensation expense, which is measured by allocating a portion of the
grant date fair value of prior and current grants to a given year based on the requisite
service period, which is often based on vesting terms, and in the case of performance or
accelerated vesting, realized performance (FASB [2010]).
Therefore, the ASC 718 equity
compensation expense measures compensation that is earned by the executive from grants
made over multiple periods for services provided and performance achieved in the scal year.
The other measure, the grant date fair value of annual equity grants, is the grant date fair
value of equity granted in the scal year.
This measure reects expectations at the time
of the grant. The grant date fair value can be useful when assessing current compensation
decisions of the board, and provides unique information about changes in the executive's
2
equity portfolio incentives.
We predict that the grant date fair value and expense provide useful and unique information to shareholders, which we examine by testing the use of the equity compensation
disclosures by investors when evaluating compensation schemes. We use proxy voting outcomes for equity compensation plan proposals to measure shareholders' evaluation of executive compensation plans. Prior research nds that voting outcomes of compensation-related
proposals are consistent with sophisticated analysis of compensation disclosures by shareholders, and that support for compensation-related proposals is negatively associated with
measures of excess compensation (Armstrong et al. [2013], Ertimur et al. [2011], Cai and
Walkling [2011]). We focus on voting outcomes for management sponsored equity plans and
amendments because management sponsored proposals require a binding vote, are designed
and approved by board members, and occur regularly for a broad sample of rms during
our sample period.
1
Investigating the relation between voting outcomes for management
sponsored equity proposals and the two measures of equity compensation provides insights
into investors' use of the measures of equity compensation provided in the proxy statement
to assess executive compensation schemes.
Our sample includes two reporting regimes. The rst is a period during which companies
were required to provide executive compensation disclosures of both the grant date fair value
of annual equity grants and the equity compensation expense. In 2006, the SEC issued the
Executive Compensation Disclosure (hereinafter, the 2006 rule),
2
which required rms to
report recognized stock and option expenses of named executive ocers in separate columns
of the Summary Compensation Table in the proxy statement for scal years ending on or after
December 15th, 2006. The 2006 rule also required rms to provide grant date fair values
of annual equity grants for the named executive ocers in the Plan-Based Awards Table
1 The 2003 Regulation, Release No. 34-48108, requires new equity plans and material modications to
existing plans to be approved by shareholders in a binding vote.
2 Executive Compensation Disclosure, Release No. 33-8765 (71 FR 78338), eective for scal years ending
on or after December 15, 2006 (SEC [2006]).
3
3
of the proxy statement, which could be used to measure the total grant date fair value.
The second reporting regime follows the introduction of Proxy Disclosure Enhancements
(hereinafter, the 2009 rule) by the SEC, which modied 17 C.F.R. Ÿ 229.402 for scal years
ending on or after December 20th, 2009 to remove stock and option equity compensation
expense disclosures from the Summary Compensation Table of the proxy statement and
4
replace them with the stock and option grant date fair values.
For the period during which grant date fair value and expense were disclosed simultaneously (2006 to 2009), we use the grant date fair value and expense to investigate the use of
this information by investors when evaluating executive compensation schemes. We examine
the relation between the distinct abnormal CEO equity compensation measures and support
for management sponsored equity plan proposals. We predict and nd a negative relation
between investor support for management sponsored equity plan proposals and abnormal
equity compensation measured using the expense reported in the Summary Compensation
Table. We also predict and nd a negative relation for abnormal equity compensation measured using grant date fair value disclosed in the Plan-Based Awards Table. Finding that
voting outcomes are signicantly related to both measures of equity compensation suggests
that the equity compensation expense and grant date fair value provide unique and useful
information for investors to assess executive compensation schemes.
We then exploit a change in SEC compensation disclosure regulation, the 2009 Proxy
Disclosure Enhancements rule that eliminated equity compensation expense disclosures from
the proxy statement, to provide additional insights into the use of compensation disclosures
by shareholders.
It is important to note that the 2009 rule neither aected the nancial
reporting expense recognized on the income statement, nor altered the reporting of the
3 The SEC noted in this ruling that the combination of the two disclosures were an improvement and
recognized that, no one approach to disclosure of stock and option awards addresses all of the issues regarding
disclosure of these forms of compensation (71 FR, No. 250, page 78340).
4 Proxy Disclosure Enhancements, Release No. 33-9089 (74 FR 68334), eective for scal years ending on
or after December 20th, 2009 (SEC [2009]).
4
grant date fair value of annual equity grants in the Plan-Based Awards Table.
5
We use
this isolated change in disclosure requirements to investigate whether the relation between
voting outcomes and the equity grant date fair value increases after the removal of the equity
compensation expense from the proxy statement. We nd no signicant change in the relation
between investor support for management sponsored equity proposals and abnormal equity
compensation measured with the grant date fair value of equity. This nding supports our
conjecture that equity grant date fair value and expense provide unique information that
investors use to evaluate executive compensation schemes.
We also examine whether rms alter equity compensation schemes after the removal of
the equity compensation expense from the proxy statement.
Specically, we predict that
rms will reduce vesting terms in response to the regulation change for at least two reasons.
First, we expect rms to shorten vesting periods to reduce the grant date fair value of equity
compensation.
6
Also, because shareholders' use of the reported equity expense to evaluate
CEO pay prior to the 2009 rule change created incentives for rms to report lower equity
expense and in turn longer vesting periods during that time, we predict that the removal
of the equity compensation expense from the proxy statement also removed the incentive to
lengthen vesting periods to report lower equity expense. Consistent with our predictions, we
nd that rms shorten vesting periods after the SEC removed the disclosure of the equity
compensation expense from the Summary Compensation Table. Further examination shows
that the reduction in vesting periods is concentrated in the set of rms that experienced
the largest decrease in reporting incentives associated with the elimination of the equity
compensation expense disclosure.
Our paper makes several contributions to literatures on the role of investors in compensationrelated governance, and the eects of disclosure regulation. Specically, we provide evidence
5 After the regulation change rms continue to recognize the equity compensation expense on the income
statement consistent with ASC 718.
6 A reduction in equity grant vesting period reduces the risk imposed on the executive and achieves the
same certainty equivalent at a lower grant date fair value.
5
that two measures of equity compensation, the grant date fair value and expense, provide
unique information that investors use to evaluate executive compensation. Our results provide further insights into the complex process that shareholders use to incorporate compensation disclosures when participating in corporate governance. In addition, by documenting
the decline in equity grant vesting periods following the removal of equity expense disclosures
from the proxy statement we not only provide additional evidence that the reported expense
inuences shareholders' evaluation of equity compensation, we also show that the removal
of this information has a real eect on equity grant contract design. Also, our study informs
current deliberations by the SEC regarding a proposal to require companies to disclose the
relationship between executive pay and a company's nancial performance. The proposal
includes a requirement to disclose an additional equity compensation measure that reects
7
equity actually paid in the year.
Our ndings suggest a complementary equity disclosure
that provides information contained in the previously disclosed equity expense would be
valuable to shareholders.
2. Background and hypotheses
Firms provide proxy statement disclosures in advance of the annual shareholders meeting, where investors vote on proposals.
The proxy statement includes required executive
compensation disclosures, which are intended to provide shareholders with the information
that is necessary to evaluate executive compensation schemes and vote on proposals.
Total annual compensation is an important element in the set of compensation disclosures
and is reported for each named executive ocer in the Summary Compensation Table of the
proxy statement.
8
Equity-based compensation is often the most signicant component of
7 According to the proposal, equity awards would be considered actually paid on the date of vesting and at fair value on that date, rather than fair value on the grant date as required in the summary
compensation table.
Both amounts would be disclosed in the new table.
(http://www.sec.gov/news/pressrelease/2015-78.html).
See SEC press release 2017-78
8 The SEC identies the named executive ocers as the ve most highly paid executives in the rm,
including the CEO and CFO.
6
annual compensation and poses signicant measurement and reporting challenges.
9
Proxy
statements have included two measures of annual equity compensation: the grant date fair
value of annual equity grants and the equity compensation expense recognized in the year.
ASC 718 requires rms to recognize annual equity compensation expense, measured by
allocating a portion of the grant date fair value of prior and current grants to a given year
based on the proportion of the vesting period that has elapsed, realized performance or the
probability of achieving performance criteria. The expense recognized for equity grants provides unique information about equity compensation for various types of grants. For equity
grants with time-based vesting provisions, ASC 718 requires rms to amortize the grant date
fair value over the vesting period.
However, when the vesting or transfer of ownership of
equity grants is linked to performance that is realized after the grant date, equity expense
can serve as a unique source of information about performance and compensation. For equity grants with vesting provisions that accelerate if performance targets are met, rms must
recognize any previously unamortized grant date fair value as an expense in the period in
which the vesting is accelerated. Therefore, the expense provides information about meeting
the target. For example, for performance-based equity grants with performance conditions
based on accounting metrics such as earnings or other non-market based metrics, the rm
recognizes the grant date fair value as an expense over the performance measurement period
if the rm believes it is probable that the performance target will be met. The rm must
subsequently determine the probability of meeting the performance target each reporting
period, and if it is deemed improbable, reduce compensation expense in the period such that
the cumulative expense for the equity grant is zero. Therefore, the expense provides infor10
mation about the rm's estimate of the probability of meeting the performance target.
9 40.5% of total compensation is equity-based for rms in ExecuComp during our sample period, where
the percentage of compensation is the grant date fair value of equity grants as reported by the rm divided by
the sum of grant date fair value of equity grants and all non-equity compensation reported in the Summary
Compensation Table.
10 We provide detailed examples of the information that is conveyed by the expense in Appendix Table
A.3.
7
The periodic adjustments to equity expense for performance-based equity grants provide
shareholders with information that cannot be obtained elsewhere when either the underly11
ing performance measures or relative benchmarks are not publicly observable.
Overall,
the ASC 718 equity expense measures compensation earned by the executive for services
provided in the scal year that results from grants made over multiple periods and provides
unique information about meeting (or the probability of meeting) performance targets.
The other measure, the grant date fair value of annual equity grants, is a function of
expectations at the time of the grant. Therefore, this measure provides unique information
on the grant date about the rm's expectations incorporated in inputs to fair value models,
which in the case of equity grants with market-based performance conditions also includes
the rm's estimated likelihood of meeting performance targets.
For example, the Black-
Scholes model requires rms to estimate the expected volatility over the life of the option.
In addition, rms must consider expected forfeiture rates based on their expectations that
the executive will depart the rm prior to vesting.
12
Finally, the grant date fair value
of equity grants with market-based performance conditions incorporates the probability of
meeting the performance targets, and results in a discount relative to an identical grant
without a performance condition. Therefore, the grant date fair value provides information
about annual equity compensation granted by the board in the scal year, and the rm's
expectations that are used to estimate fair values.
Consistent with the diculty in determining the usefulness of information provided by
equity compensation measurements and disclosures in the proxy statement, the SEC has
11 It is possible for investors to reproduce reported equity expense when equity grants are not performancebased and do not include accelerated vesting provision using reported grant date fair values and additional
disclosures. The process requires investors to track grant details over time and allocate the portion of the
fair value to a given year according to the original vesting terms. Even when an executive is granted equity
without performance vesting or accelerated vesting provision exclusively, reproducing total expense for a
given year can be complicated by events that occur after the initial grant date (e.g. option repricing).
12 According to ASC 718, rms can use their historical exercising behavior or the ...expected term might
be estimated in some other manner, taking into account whatever relevant and supportable information
is available, including industry averages and other pertinent evidence such as published academic research
(ŸA29).
8
changed their position regarding the measure of equity compensation reported in the Summary Compensation Table several times since considering amendments to compensation disclosures as part of Executive Compensation Disclosure (the 1992 release).
13
The comment
letters from various constituents regarding proposed amendments to executive disclosure requirements diered in their support for the inclusion of either equity grant date fair value,
14
or expense, in the Summary Compensation Table.
To shed light on whether the two methods of measuring equity compensation provide
useful and unique information, we take advantage of a period during which the SEC required rms to disclose the equity compensation expense and the grant date fair value of
annual equity grants in the proxy statement.
The 2006 rule required rms to report the
stock and option expenses of named executive ocers in separate columns of the Summary
Compensation Table in the proxy statement for scal years ending on or after December
15th, 2006.
The 2006 rule also required rms to provide grant date fair values of annual
equity grants for the named executive ocers in the Plan-Based Awards Table of the proxy
statement. By requiring annual equity grant fair values to be reported in the Plan-Based
Awards Table, the SEC required rms to provide information that enabled shareholders to
estimate total annual compensation using the equity grant date fair value in addition to the
expense reported in the Summary Compensation Table.
To the extent that both sources of information provide useful and unique information for
investors to assess executive compensation schemes, we predict that both equity measures will
be incrementally useful when evaluating executive pay as stated in the following hypotheses:
13 See Executive Compensation Disclosure, Release No. 336962 (57 FR 48126) (SEC [1992]). Appendix
Table A.2 summarizes the changes in the SEC disclosure rules that pertain to equity compensation measurement and disclosure.
14 Some user groups prefer rms to report the grant date fair value, because they believe that grant date
fair value reects the compensation decisions made by the board in the current period. Examples include
investor groups, compensation consultants and proxy advisors. See, e.g., comment letters from California
Public Employees' Retirement System; Towers Perrin and Institutional Shareholder Services to the SEC on
the proposed 2006 rule. Other user groups, such as auditors, prefer the rm to report the ASC 718 expense
because they believe it reects realized pay in the year and is consistent with nancial reporting rules. See,
e.g. comment letters from Grant Thornton.
9
H1: Investors use the grant date fair value of annual equity grants to evaluate
executive compensation schemes.
H2: Investors use the ASC 718 equity compensation expense to evaluate executive
compensation schemes.
The placement and form of the compensation information within the proxy statement may
also inuence how investors incorporate each equity compensation measure when making
decisions.
Reporting equity compensation expense in the Summary Compensation Table
and incorporating it in the calculation of total annual compensation may increase the degree
to which investors weigh equity expense relative to fair value when evaluating executive pay.
In addition, the disaggregated presentation of the individual grant date fair values in the
Plan-Based Awards Table increases processing costs associated with creating a total fair
value measure, albeit arguably a small amount, and may also aect the use of equity fair
value relative to expense.
The 2009 Proxy Disclosure Enhancement Rule, which became eective for scal years
ending on or after December 20, 2009, altered how rms report equity grants in the Summary
Compensation Table. Specically, the new rule required rms to report the grant date fair
value of the annual stock and option grants to named executive ocers as separate columns
of the Summary Compensation Table. The rule also eliminated the reporting of the ASC
718 equity compensation expense from the proxy statement.
15
Thus, while the 2009 rule
had no eect on the compensation expense recognized by the rm in the income statement,
it eliminated investors' ability to identify the amount of expense that is attributed to any
of the named executive ocers. We explore the eects of removing the equity compensation
expense from the proxy statement on shareholders' use of the grant date fair value.
To the extent that equity compensation expense provided useful and unique information
that can not be replicated with the grant date fair value disclosures, there will be no shift in
15 Appendix Table A.1 provides an example of the disclosures required under the two regimes.
10
the use of the grant date fair value reported in the Plan-Based Award Table after removing the
equity compensation expense.
16
However, reporting in the Summary Compensation Table
the aggregated grant date fair value of annual equity grants reported in the Plan-Based
Awards Table may have aected investors' use of this information. If either the processing
costs associated with aggregating the grant date fair values into a single measure, or the
placement of an equity measure in the Summary Compensation Table (and the computation
of total annual compensation) substantially impact how investors use equity compensation
measures, then the changes introduced by the 2009 rule may increase the weight investors
place on the equity grant date fair value. This leads to the following hypothesis:
H3: The grant date fair value of annual equity grants is more useful to investors
after the adoption of the Proxy Disclosure Enhancement Rule.
3. Empirical methodology
To test our hypotheses, we examine the relation between the CEO equity compensation
measures and voting outcomes for equity compensation related proposals. We describe the
compensation data in Section 3.1, voting data in Section 3.2, and the empirical models in
Section 3.3.
3.1. Proxy statement equity compensation disclosures
As discussed in Section 2, the 2006 rule required rms to report the equity expense in the
Summary Compensation Table, and the grant date fair value in the Plan-Based Awards Table
of the proxy statement for scal years ending on or after December 15, 2006. The 2009 rule
subsequently removed the equity compensation expense from the Summary Compensation
Table and replaced it with the total grant date fair value, while the equity grant information
16 Although the equity compensation expense continues to be recognized by the rm on their income
statement, even after the adoption of the 2009 rule, it is dicult (and in many cases impossible) to link
the equity compensation expense to the named executive ocers using the information provided to in the
nancial statements or the proxy statements.
11
in the Plan-Based Awards Table was left unchanged. The 2009 rule became eective for scal
years ending on or after December 20, 2009. Therefore, our rst tests rely on compensation
data for scal years ending between December 15, 2006 and December 20, 2009, which
includes proxy statement disclosures of both the grant date fair value of annual equity grants
and the ASC 718 equity compensation expense. We obtain CEO compensation data from
the ExecuComp database and complement it with additional data collected directly from
17
proxy statements.
3.2. Voting results
The SEC, NYSE and NASDAQ require rms to obtain shareholder approval of certain
types of compensation-related matters including management and shareholder compensation
proposals and periodic Say on Pay votes. These voting opportunities enable shareholders
to express their dissatisfaction or approval of executive compensation policies. Prior research
has found that shareholder voting can directly aect executive compensation plan design.
For example, a large percentage of rms that experience adverse shareholder votes for Say
on Pay proposals amend compensation plans to reduce shareholder opposition (Ertimur
et al. [2013], Lo et al. [2014]).
In addition, while there is typically a low probability of
implementation of shareholder compensation proposals, implementation likelihood increases
signicantly when proposals receive a majority vote (Ertimur et al. [2011]).
18
Findings from prior studies suggest that compensation-related voting outcomes are con-
17 Close examination of the expense and fair value variables led us to conclude that ExecuComp frequently
mispopulates the stock and option expense variables (STOCK_AWARDS and OPTION_AWARDS ExecuComp variables). Over 40% of the stock and option expense values are exactly the same as their corresponding
fair values for observations that fall between December 15, 2006 and December 20, 2009. While there are
valid reasons for some of these observations to have expense and fair values equal to one another, we nd
that in most cases ExecuComp incorrectly populates the expense numbers with the corresponding fair value
(over 75% of observations). To correct this problem, for every ExecuComp annual compensation observation
that has the same values for stock and option expenses and fair values, we manually collect the correct
stock and option expense values directly from the Summary Compensation Table in the corresponding proxy
statement on SEC EDGAR. We then replace the stock and option expense variables with the corrected data.
18 Shareholders may also inuence compensation decisions by withholding votes for directors that are
integral to the design and approval of executive compensation (Cai et al. [2009], Fischer et al. [2009]). This
form of indirect inuence on compensation decisions may target directors on compensation committees, and
consist of 'vote-no' campaigns led by shareholder groups or proxy advisory rms.
12
19
sistent with sophisticated shareholder analysis of compensation disclosures.
Support for
compensation-related proposals from management and shareholders are negatively associated
with excess compensation, where excess compensation is the dierence between reported annual compensation and the compensation level predicted by an empirical model of economic
determinants (Armstrong et al. [2013], Ertimur et al. [2011], Cai and Walkling [2011]). Specic proposal and rm characteristics also aect the amount of shareholder voting support
(Morgan et al. [2006]). Relying on these insights from prior research, to the extent that each
measure provides useful and unique information we expect shareholder voting outcomes to
be related to grant date fair values of annual equity grants and ASC 718 equity compensation
expense.
We obtain voting results from the ISS Voting Analytics Database, which collects voting results for various compensation-related proposals, including those sponsored by management
and shareholders. We measure shareholder support for executive compensation policy using
the percentage of favorable votes for management sponsored equity plans for two reasons.
First, we focus on proposals sponsored by management, rather than shareholder proposed
plans to identify shareholders' views regarding plans designed and approved by the board
of directors.
Second, we consider proposals regarding equity plans because the 2003 SEC
Regulation Release No. 34-48108 requires new plans and material modications to existing
plans to be approved by shareholders in a binding vote. Because votes on the proposals are
required by regulation, we are able to observe them periodically for large sample of rms
that enact or modify equity compensation plans during the normal course of business.
20
19 While proxy advisory rms, such as Institutional Shareholder Services (ISS) and Glass, Lewis & Co.,
have been found to signicantly inuence voting outcomes, evidence suggests that shareholders do not naively
follow advisor recommendations (Ertimur et al. [2013], Iliev and Lowry [2015]).
20 With the exception of a handful of rms that voluntarily propose Say on Pay votes, they are generally
not available during the 2006-2009 period in which we conduct our primary analysis. Though Say on Pay
votes are available beyond 2009, we exclude them from our Proxy Disclosure Enhancement tests to prevent
any dierences in proposal types from confounding our ndings.
13
3.3. Tests of equity compensation measures and voting outcomes
To test investors' use of equity compensation expense and grant date fair value as predicted in H1 and H2, we focus on compensation data for scal years ending between December
15, 2006 and December 20, 2009. We then identify management sponsored equity plan proxy
votes and match them to the corresponding rm and scal year in our sample period. We
use Compustat and CRSP to measure rm-level control variables, and estimate the following
model:
V otesF or = α0 + α1 AbnEquityCompF V + α2 AbnEquityCompExp
+α3 DirectorN + α4 Indep% + α5 IndepOwn + α6 ROA
(1)
+α7 Ret3yr + α8 log(Delta) + where,
V otesF or
is the proportion of For votes on a proxy proposal related to executive
equity compensation, dened as the number of For votes divided by the sum of all votes
(For, Against and Abstain);
AbnEquityCompF V
is the abnormal CEO equity com-
pensation estimated using the grant date fair value of the annual equity grants reported in
the Plan-Based Award Table of the proxy statement;
AbnEquityCompExp
is the abnormal
CEO equity compensation estimated using the ASC 718 compensation expense reported in
the Summary Compensation Table of the proxy statement.
We also include a set of control variables that are related to shareholders' votes on compensation related proposals as documented in prior studies (Cai and Walkling [2011], Ertimur
et al. [2013]). We include the number of independent directors,
of independent directors on the board,
pendent directors,
return on assets,
DirectorN ,
the percentage
Indep%, and the percentage of stocks owned by inde-
IndepOwn as controls for corporate governance eectiveness.
ROA
and the stock return over three-year period,
Ret3yr
We include
as controls for
the eect of rm performance on shareholders' votes. We also include the logarithm of the
sensitivity of the CEO's equity portfolio to 1% stock price change,
the eect of incentives provided by the CEO's equity holdings.
14
log(Delta),
to control for
Abnormal equity compensation is measured using residuals from an empirical model of
equity compensation similar to the method used by Cai and Walkling [2011]. The following
model is estimated annually for the set of ExecuComp rms with available data:
EquityComp = θ0 + θ1 Size + θ2 Leverage + θ3 BT M + θ4 Ret3yr
+Σi θi Industry F Ei + where,
Size
is the logarithm of the market value of equity,
(2)
Leverage
is the book value
of debt divided by the sum of the book value of debt and the market value of equity, and
BT M
is the book value of total assets divided by the sum of the book value of debt and
the market value of equity. The model also includes industry xed eects using two-digit
SIC codes. We estimate Eq. (2) annually and separately with the CEO equity compensation
expense and the grant date fair value of the annual equity grants as dependent variables to
obtain the residuals for
AbnEquityCompExp
and
AbnEquityCompF V .21
Generally, investors vote against paying excessive compensation (Cai and Walkling [2011]).
To the extent that investors use the grant date fair value of equity to measure equity compensation, H1 predicts that the probability that investors vote For an equity proposal
is decreasing in abnormal equity compensation measured using the grant date fair values
reported in the Plan-based Award Table. Therefore, H1 predicts a negative coecient on
AbnEquityCompF V , α1 < 0.
To the extent that investors use the ASC 718 expense to
measure equity compensation, H2 predicts that the probability that investors vote For an
equity proposal is decreasing in abnormal equity compensation measured using the expense
recognized in the Summary Compensation Table, which corresponds to a negative coecient
on
AbnEquityCompExp, α2 < 0.
To test our third hypothesis on whether investors change their use of grant date fair
21 Due to the relatively small number of observations in 2009 we group 2008 and 2009 to estimate abnormal
compensation.
15
values after the adoption of the 2009 rule, we estimate the following empirical model:
V otesF or = γ0 + γ1 AbnEquityCompF Vpre + γ2 AbnEquityCompF Vpost
(3)
+γ3 AbnEquityCompExppre + γ4 P ost + γ5 DirectorN + γ6 Indep%
+γ7 IndepOwn + γ8 ROA + γ9 Ret3yr + γ10 log(Delta) + where,
pre
indicates the period prior to Dec.
post
and 0 in the
pre
and is 0 in the
post
indicates the period
in the
pre
period,
AbnEquityCompF Vpost = AbnEquityCompF V
in the
post
period
AbnEquityCompExppre = AbnEquityCompExp
in the
pre
period,
period;
period;
post
AbnEquityCompF Vpre = AbnEquityCompF V
on or after Dec. 20, 2009;
and 0 in the
20, 2009, and
period because the ASC 718 expense for equity compensation is not
available in the proxy statements for scal years post Dec. 20, 2009.
Finding that the proportion of For votes is
more negatively related with grant date fair
values after the adoption of the proxy enhancement disclosure rule,
γ2 < γ1 ,
suggests that
investors weigh the grant date fair values of equity compensation reported in the Plan-Based
Awards Table more after the adoption of the 2009 rule. In contrast, nding an insignicant
change in the relation between the grant date fair value and the proportion of For votes
after the adoption of the 2009 rule suggests that investors
do not
signicantly change their
use of the grant date fair value of equity compensation after the adoption of the 2009.
4. Data and results
4.1. Sample distribution and summary statistics
Our sample to test H1 and H2 includes 1,013 rm-year observations for the period starting
December 15, 2006 and ending December 20, 2009, when the 2009 rule became eective.
Table 1, Panel A reports the summary statistics for the sample during this period.
The
mean (median) grant date fair value of equity compensation for our sample of CEOs is
$3,144,520 ($2,008,880), and the mean (median) reported equity compensation expense is
$3,325,170 ($2,130,830).
The mean (median) proportion of For votes,
16
VotesFor,
is 81%
(84%). On average the number of independent directors for our sample rms is 9.3, which
corresponds to 78% of the board being independent, on average.
Independent directors
own 2% (1%) of the rm at the mean (median). The average return on assets (
ROA)
and
Ret3yr ) is 4% and 19%, respectively.
three-year stock return (
Panel B reports the Pearson correlation coecients for our variables of interest and the
control variables. Both the abnormal fair value,
expense,
AbnEquityCompFV, and abnormal ASC 718
AbnEquityCompExp, of equity compensation are negatively correlated with Votes-
For, which suggests that investors are less likely to vote For
equity compensation of the CEO is higher.
CompFV$
and
EquityCompExp$
a proposal when the abnormal
Moreover, the raw equity measures,
are weakly negative associated with
VotesFor,
Equity-
consistent
with investors' adjustment of equity compensation levels when making voting decisions.
VotesFor
is also positively correlated with
ROA, suggesting that investors are more likely to
approve compensation proposals when rm performance is higher.
4.2. Results of investors' use of equity grant date fair value and expense
Table 3 reports results from estimating Eq. (1), which tests investors' use of the ASC 718
equity compensation expense reported in the Summary Compensation Table and the grant
date fair value of annual equity grants reported in the Plan-Based Awards Table. Column (1)
reports results from estimating the model using only the equity fair value measure. We nd
that the proportion of For votes is negatively related to the abnormal grant date fair value
of equity compensation (
p-value
< 0.01).
This result supports H1 and is consistent with
investors' use of the equity grant date fair value to evaluate executive compensation when
voting on compensation proposals. Column (2) reports results from estimation of the model
using only the abnormal equity compensation measure derived from the ASC 718 expense
reported in the Summary Compensation Table. We nd that the proportion of For votes is
p-value
signicantly, negatively related with the abnormal equity compensation expense (
<
0.05). The negative and signicant coecient on the abnormal equity compensation expense
supports H2, and suggests that investors use the equity compensation expense reported
17
in the Summary Compensation Table when evaluating executive compensation to vote on
compensation proposals.
We nd in columns (1) and (2) that the proportion of For votes is decreasing in both
the grant date fair value and the expense when we consider the compensation metrics independently. In column (3), we test the relation between voting outcomes and both abnormal
equity compensation measures in the same empirical model. To the extent that each measure
provides unique information to investors, both signicantly negative relations should persist.
We nd that the proportion of For votes remains negatively associated with both the abnormal equity grant date fair value (
p-value
p-value
< 0.10), and expense (
< 0.10). This
result supports H1 and H2, and suggests that the grant date fair value and expense provide
unique and useful information to investors.
22
The control variables,
DirectorN
and
ROA,
are positively associated with voting support for management sponsored equity proposals in
all three specications. None of the other control variables are signicant determinants of
voting outcomes.
To determine whether the results are sensitive to the specic distributions of the estimated
abnormal compensation measures, we re-estimate Eq. (1) using annual percentile ranks of
the abnormal equity compensation measures. Consistent with our ndings in Table 3, we
continue to nd that the proportion of For votes is negatively related with the each of
the ranked equity fair value and expense measures when estimated independently. However,
inconsistent with the results presented in Table 3, when we include both the abnormal
grant date fair value rank and the abnormal equity compensation expense rank in the same
model, only the expense measure is a signicant determinant of the voting outcome.
We
also estimate Eq. (1) with standardized abnormal equity compensation measures and nd
results consistent with our ndings in Table 3. The proportion of For votes is negatively
related with both of the standardized abnormal equity compensation measures when they
22 The dierence between the coecients on the equity grant date fair value and expense measures is not
signicantly dierent, which suggests that neither measure of compensation is more informative to investors
when evaluating equity compensation plans.
18
are included separately or together in Eq. (1).
4.3. Proxy Disclosure Enhancements rule and the use of the grant date fair value
To test whether investors change their use of grant date fair values after the adoption
of the 2009 rule, we examine the use of the compensation information before and after
the adoption of the Proxy Disclosure Enhancement Rule.
Table 2 reports the summary
statistics of CEO equity compensation for scal years ending before (pre-2009 period), and
after December 20, 2009 (post-2009 period).
The mean (median) grant date fair value of
equity compensation in the post-2009 period is $3,499,490 ($2,225,690), suggesting that
grant date fair value of equity compensation is higher for CEOs in the post-2009 period.
VotesFor
has a mean (median) of 85% (88%) for the post-2009 subsample, which is similar
to the numbers in the pre-2009 subsample. Note that the ASC 718 expense of CEO equity
compensation is no longer available in the post-2009 period.
Table 4 presents results from estimating Eq. (4) for the full sample of observations that
precede and follow the adoption of the 2009 rule. Consistent with our ndings in Table 3,
p-value
we nd a negative and signicant coecient on grant date fair value (
p-value
a negative and signicant coecient on the equity grant expense (
< 0.05) and
< 0.05) in the
period prior to the 2009 rule. At the same time, we nd that the coecient on the grant
p-value
date fair value in the period following the 2009 rule is negative and signicant (
<
0.05). A test of whether the coecient on the grant date fair value following the 2009 rule
is signicantly greater than the coecient on the fair value prior to the adoption of the rule
shows that the coecients are not signicantly dierent (
p-value
= 0.238).
Together, the results in Table 4 provide evidence that investors
do not
signicantly
change their use of the grant date fair value of annual equity grants after the removal of the
equity expense from the proxy statement, and placement of the grant date fair value of annual
equity grants in the Summary Compensation Table. This evidence supports our ndings that
the equity grant date fair value and expense each provide useful and unique information to
investors evaluating executive compensation schemes, and suggest the presentation and form
19
of equity grant date fair value disclosures within the proxy statement do not have substantial
eects on their use by shareholders.
5. Additional tests
5.1. Proxy Disclosure Enhancements rule and vesting terms
Removing the equity compensation expense from the Summary Compensation Table
may also inuence how rms contract with the CEO. We nd evidence that the equity
compensation expense that was reported in the Summary Compensation Table prior to
the adoption of the SEC Proxy Disclosure Enhancements rule was useful for investors to
evaluate executive compensation schemes. We also nd that investors continue to use the
grant date fair value of annual equity grants after the adoption of the SEC Proxy Disclosure
Enhancements rule. Therefore, rms may respond to the removal of the equity compensation
expense from the proxy statement by shortening equity grant vesting terms for two reasons.
First, rms may shorten equity grant vesting periods to reduce the grant date fair value
of annual equity grants. Shortening equity grant vesting periods reduces the risk imposed
on executives, which reduces costly risk-sharing and allows rms to achieve similar executive
certainty equivalents of equity compensation at a lower grant date fair value. While reducing
vesting periods may increase recognized compensation expense, any additional costs that
were associated with
reporting
the expense in the proxy statement are reduced following the
elimination of compensation expense in the new disclosure regime.
Second, prior to the 2009 rule rms may have the incentive to extend vesting terms to
reduce costs associated with disclosing equity expense in the Summary Compensation Table
since high abnormal equity expense is negatively related to investor support. This eect is
incremental to the increase in option vesting terms that resulted from the nancial reporting
incentives introduced by SFAS 123(R) documented by (Cadman et al. [2013]). For rms that
extended vesting terms prior to the 2009 disclosure change, eliminating the compensation
expense disclosure could result in shorter equilibrium vesting terms. For these two reasons,
20
we predict that rms will shorten vesting periods following the adoption of the SEC Proxy
Disclosure Enhancements rule, which removed the equity compensation expense from the
Summary Compensation Table and proxy statement.
To provide evidence on the contracting consequences of removing the equity compensation
expense disclosure from the proxy statement, we test the change in vesting terms following the
adoption of the 2009 rule. We use equity grant date fair values and vesting and performance
measurement terms to create two vesting measures for each rm-year:
1)
VestingVW,
a
value-weighted measure that weighs each grant vesting term by its corresponding grant date
fair value, and 2)
VestingMax, an unweighted maximum vesting measure.
We obtain vesting
data for a subset of the sample from Incentive Lab, who collect vesting and performance
measurement data for equity grants reported in the Plan-Based Awards Table of the annual
proxy statement.
23
We use the reported grant date fair values except when Incentive Lab
indicates that a grant does not have an individually identiable fair value, in which case
we estimate the missing fair values using market inputs available on the grant dates along
24
with reported grant characteristics.
We weigh the maximum vesting period (performance
measurement period in the case of performance-based equity grants) by the grant date fair
value for each equity grant to construct a fair value weighted average annual vesting period.
Table 5 Panel A presents descriptive and univariate test statistics for the composite
vesting measures, for the periods before and after the 2009 rule.
For the value-weighted
(maximum) vesting measure, we nd that the mean vesting term declines from 40.86 (45.21)
months to 39.52 (43.19) months after the adoption of the 2009 rule.
the mean pre- and post-2009 values of
VestingVW (VestingMax )
This dierence in
of 1.34 (2.02) months is
23 Though performance-based equity grants typically vest immediately upon achievement of performance
goals, the performance measurement period aects expense recognition similar to vesting periods for stock
or option grants. In addition to including performance-based grants in our aggregate vesting measure, we
also examine changes in their performance measurement periods separately in Panel B of Table 5.
24 To estimate fair values for stock (performance) grants, we multiply the number of shares (target shares)
by the closing stock price on the grant date.
We estimate option values using the closing stock price,
annualized daily stock return volatility measured over the year prior to the grant, reported exercise price
and expiration date, and expiration date matched risk-free rate.
21
signicant (
p-value
< 0.01). Further examination of the changes in vesting for specic types
of equity grants shows that the decrease in vesting occurs for a broad set of commonly
used grant types.
Table 5 Panel B reports vesting statistics for the pre- and post-2009
25
periods for stock, option, and performance-based equity grants separately.
in
VestingVW (VestingMax )
The decreases
of performance-based, stock and option grants following the
2009 rule are signicant (except for the decrease in the mean
VestingVW
of option grants).
Together these results provide evidence that rms shortened equity grant vesting periods,
on average, after the 2009 rule no longer required rms to report the equity compensation
expense in the Summary Compensation Table.
We expect the reduction in vesting terms to be more pronounced for rms that faced
greater incentives to report lower equity expense upon adoption of the 2006 rule, and in
turn longer vesting periods prior to the 2009 rule change. The 2006 rule introduced both
the equity expense in the Summary Compensation Table and the equity grant date fair
values in the Plan-Based Awards Table. The equity expense and fair value disclosures would
have had opposing eects on equilibrium vesting terms, and rms that beneted more from
reporting lower expenses would have had greater incentives to lengthen vesting terms to
reduce reported CEO equity compensation expense during the 2006-2009 period.
To test
whether rms that lengthened vesting periods to report lower equity expense in response to
the 2006 rule change also reduced vesting terms to a greater degree in response to the 2009
rule change, we create a rm-specic proxy for the degree of the increase in incentives to
lengthen vesting periods that resulted from the 2006 rule change. The proxy,
DVest2006,
measures the rm-level change in vesting that occurred after the 2006 rule that initially
required the equity expense disclosure in the proxy statement using dierences between the
pre- and post-2006 values of
and low groups of
VestingVW (VestingMax ).
DVest2006
26
We partition the sample into high
to test whether rms in the high group experience relatively
25 Vesting measures were created separately for each grant type in each rm-year.
26 Each rm can have multiple observations in the post-2006 period, therefore we use the average post-2006
vesting measures to construct
DVest2006.
22
larger decreases in vesting terms after the 2009 rule.
Table 6 reports the pre- and post-2009 vesting measures for the high and low
groups for a sample of rms for which we are able to measure
DVest2006
VestingVW (VestingMax ) for
all three periods, i.e. pre-2006, 2006-2009, and post-2009 periods. The high (low)
DVest2006
group includes rms with above (below) median values of changes in vesting terms between
the pre- and post-2006 periods. The decrease in
group is negative and signicant (
group is not signicant for
p-value
VestingVW
p-value
and
VestingMax
for the high
< 0.01), while the decrease in vesting for the low
and signicant for
Also, the dierence between the changes in
is signicant (
VestingVW
VestingMax (p-value
< 0.01).
VestingVW (VestingMax ) across the two groups
< 0.01). Consistent with our prediction, we nd that rms in the high
group experience larger decreases in equity grant vesting terms following the 2009 rule.
The fact that rms altered contracts in response to the removal of equity expense from the
proxy statement provides additional support for our prediction that the equity compensation
expense was useful information for investors evaluating executive compensation schemes. In
addition, nding that the decrease in vesting terms is concentrated among rms that faced
greater incentives to increase vesting associated with the initial equity expense disclosure
requirement helps us identify the incremental eect that changes in equity compensation
disclosure requirements has had on equity contract design. Together the results support our
hypotheses that the grant date fair value and equity compensation expense provide useful
information for investors to evaluate executive compensation schemes, and that rms alter
contract design in response to changes in required compensation disclosures.
5.2. Dierential use of equity compensation disclosures
H1 and H2 predict that the grant date fair value of annual equity grants and the equity
compensation expense provide unique and useful information to investors voting on compensation proposals.
To understand the variation in the use of the two equity disclosures by
investors further, we examine whether the use of the equity measures is a function of their
relative magnitudes. Armstrong et al. [2013], Ertimur et al. [2011], Cai and Walkling [2011]
23
nd that support for compensation-related proposals is negatively associated with measures
of excess compensation. Therefore, to the extent that shareholders consider both measures
of equity pay to evaluate whether the CEO is compensated abnormally high, voting behavior may be more closely associated with the maximum of the two measures (or any measure
27
that identies excess equity pay).
Therefore, we predict that the negative relation be-
tween abnormal equity compensation and investor support for management sponsored equity
proposals is larger for the equity measure that yields the largest value.
To test for the inuence of the relative values of the two equity compensation measures
on investors' use of the information, we estimate the following equation:
V otesF or = β0 + β1 AbnEquityCompF VhighExp + β2 AbnEquityCompF VhighF V
(4)
+β3 AbnEquityCompExphighExp + β4 AbnEquityCompExphighF V
+β5 DirectorN + β6 Indep% + β7 IndepOwn + β8 ROA
+β9 Ret3yr + β10 log(Delta) + where,
highExp indicates EquityCompExp$
>=
EquityCompFV$
and
highF V
indicates
EquityCompFV$ > EquityCompExp$ ; AbnEquityCompF VhighExp =AbnEquityCompF V
highExp=1, and 0 otherwise; AbnEquityCompF VhighF V =AbnEquityCompF V
and 0 otherwise;
0 otherwise; and
when
highF V =1,
AbnEquityCompExphighExp =AbnEquityCompExp when highExp=1,
AbnEquityCompExphighF V =AbnEquityCompExp
when
when
highF V =1,
and
and
0 otherwise. We predict that the weight on the equity measure that yields the largest equity
compensation amount will be larger than that of the other measure, therefore, we predict
that
β1 > β3
and
β2 < β4 .
Table 7 column (1) presents results for the estimation of the model in Eq. (4). We nd
27 For example, in some instances, a rm may not grant equity in a given year, rendering the grant date
fair value of equity compensation zero.
At the same time the rm will expense equity grants from prior
years. In this scenario, we expect the equity compensation expense to be more informative than the grant
date fair value. In contrast, a rm may grant equity to an executive for the rst time, at the end of a given
year. In this scenario, the equity compensation expense will be a small fraction of the grant, while the grant
date fair value is more informative.
24
that the grant date fair value is not a signicant determinant of the proportion of For votes
when the grant date fair value is less than the equity compensation expense. In contrast, we
nd that equity grant date fair values are signicant determinants of voting outcomes when
the grant date fair value is greater than or equal to the compensation expense (
p-value
<
0.01). This suggests that the proportion of investors voting For a compensation proposal
is negatively related with the grant date fair value of equity grants when the grant date fair
value is larger than the equity compensation expense. We nd similar results for the equity
expense measure; compensation expense is a signicant determinant of the proportion of
For votes when the grant date fair value is less than or equal to the equity compensation
p-value
expense (
< 0.01), and is not a signicant determinant of the voting outcome when
the grant date fair value is greater than the equity expense. This result suggests that the
proportion of investors voting For a compensation proposal is negatively related with equity
compensation expense when the equity compensation expense is greater than the grant date
fair value.
When we test the dierence in the coecients, we nd that the weight voters place on the
grant date fair value is signicantly less than the weight placed on the equity compensation
expense when the grant date fair value is less than or equal to the equity compensation
p-value
expense (
< 0.01). Similarly, the weight placed on the grant date fair value is sig-
nicantly greater than the weight placed on the compensation expense when the grant date
p-value
fair value is greater than the equity compensation expense (
< 0.10). Thus, we nd
evidence that the equity compensation measure of greater magnitude is the more signicant
determinant of the voting outcome.
We also estimate the model using the relative mag-
nitudes of the abnormal equity compensation measures to dene the
groups. The results using the alternative
highExp
and
highFV
highExp
and
highFV
groups reported in column
(2) are consistent with those in column (1).
Combined, the results in Table 7 yield several insights.
First, the results support our
conjecture that investors use the grant date fair value of annual equity grants and the equity
25
compensation expense to evaluate CEO pay. Second, they indicate that the relation between
voting outcomes and the equity compensation measures documented in Table 3 is driven by
the larger measure of compensation. That is, the voting outcome is related to the grant date
fair value of annual equity grants only when the grant date fair value is greater than the
equity compensation expense, while the voting outcome is related to the equity compensation
expense only when the expense is greater than the grant date fair value.
6. Conclusion
Investors rely on compensation disclosures to evaluate and inuence the design of executive compensation packages. We take advantage of changes in executive equity compensation
disclosure requirements to examine how investors use compensation disclosures reported in
proxy statements to evaluate executive equity compensation schemes, and the contracting
consequences of disclosure regulation changes.
There have been two primary methods of reporting annual equity compensation, namely
the ASC 718 equity expense and the grant date fair value of annual equity grants. These
methods dier on several dimensions that lead them to provide unique information about
executive equity compensation. Because of the unique information, we predict that both the
grant date fair value of annual equity grants and the equity compensation expense provide
useful and unique information to shareholders.
We test this prediction by examining the
use of the equity compensation disclosures by investors evaluating compensation schemes.
We use proxy voting outcomes for equity compensation plan proposals as a proxy for shareholders' evaluation of executive compensation packages, because prior research nds that
voting outcomes of compensation-related proposals are consistent with sophisticated analysis of compensation disclosures by shareholders, and that support for compensation-related
proposals is negatively associated with measures of excess compensation (Armstrong et al.
[2013], Ertimur et al. [2011], Cai and Walkling [2011]).
We rst examine a sample period during which companies were required to provide
26
executive compensation disclosures of both the grant date fair value of annual equity grants
and the equity compensation expense. We nd a negative relation between investor support
for management sponsored equity proposals and abnormal equity compensation measured
using both the expense reported in the Summary Compensation Table and the grant date
fair value of annual equity grants reported in the Plan-Based Awards Table. Finding that
voting outcomes are signicantly related to both measures of equity compensation suggests
that equity compensation expense and the grant date fair value provide unique and useful
information for investors to assess executive compensation schemes.
We then exploit the change in SEC compensation disclosure regulation, the 2009 Proxy
Disclosure Enhancements rule that eliminated equity compensation expense disclosures from
the proxy statement, to provide additional insights into the use of compensation disclosures
by shareholders and the eect of the change in information environment on compensation
contracting. We nd no signicant change in the relation between management sponsored
equity proposals and abnormal equity compensation measured using the grant date fair value.
This nding suggests that the grant date fair value is not more useful to investors after the
adoption of the 2009 rule and supports our conjecture that equity grant date fair value
and
expense provide unique information that investors use to evaluate executive compensation
schemes.
We also examine whether rms alter equity compensation schemes after the removal of
the equity compensation expense from the proxy statement. Consistent with our prediction,
we nd that rms shorten vesting terms after the SEC removed the equity compensation
expense from the Summary Compensation Table. Further examination shows that the reduction in vesting terms is concentrated in the set of rms that experienced a larger reduction
in incentives to lengthen vesting periods associated with the elimination of the expense disclosure.
Finally, we examine whether cross-sectional dierences in the use of the equity
measures is a function of their relative magnitudes.
We predict and nd that the nega-
tive relation between abnormal equity compensation and investor support for management
27
sponsored equity proposals is larger for the equity measure that yields the largest value.
Overall, we provide evidence that both the grant date fair value of annual equity grants
and the equity compensation expense provide unique and useful information to shareholders.
Our paper makes several contributions to broad streams of literature on the role of
investors in compensation-related governance, and the eects of disclosure regulation. Our
results provide further insights into the complex process that shareholders use to incorporate
compensation disclosures when participating in corporate governance. In addition, by documenting the decline in equity grant vesting periods following the removal of equity expense
disclosures from the proxy statement we not only provide additional evidence that the reported expense inuences shareholders' evaluation of equity compensation, we also show that
the removal of this information has a real eect on equity compensation schemes. Finally, our
study informs current deliberations by the SEC regarding a proposal to require companies
to disclose the relationship between executive pay and a company's nancial performance,
which includes a requirement to disclose an additional equity compensation measure that
reects equity actually paid in the year.
Our ndings suggest a complementary equity
disclosure that provides information contained in the previously disclosed equity expense is
useful information for shareholders.
28
29
1/9/2008
3/14/2007
3/14/2007
2,977,996
654,197
54,141
Incentives ($)
Non-equity
46,727
Threshold
466,427
Target
4,726,787
Max
14,572
Threshold
46,258
Target
69,387
Max
Under Equity Incentive Plan (#)
255,677
All Other
48.89
Price ($)
Exercise
472,979
323,020
Compensation ($)
Option Awards (#)
All Other
313,234
265,699
Value and NQDC ($)
Change in Pension
Non-equity Incentive Plan ($)
Grants of Plan-Based Awards Table
6,118,836
3,212,073
Awards ($)
Awards ($)
496,676
Option
Stock
Estimated Future Payouts
389,411
447,680
Bonus ($)
Estimated Payouts Under
1,130,000
1,235,769
Salary ($)
Grant Date
2006
President
Gregg W. Steinhafel
2007
Gregg W. Steinhafel
Year
Summary Compensation Table
Table A.1 Examples of executive compensation in the proxy statement
Panel A: pre-2009 period example
Appendix
4,586,845
2,750,038
Fair Value ($)
Grant Date
12,056,653
6,035,058
Total ($)
30
0
54,141
75,424
113,136
Max
All Other
49.41
Price ($)
Exercise
323,020
539,953
176,308
Compensation ($)
Option Awards (#)
48,068
3,780,000
1,620,000
Target
247,139
1,215,000
810,000
Threshold
1/13/2010
303,750
202,500
Max
Under Equity Incentive Plan (#)
Target
Non-equity Incentive Plan ($)
Threshold
All Other
265,699
340,537
601,869
Value and NQDC ($)
Change in Pension
1/13/2010
9/8/2009
3/11/2009
3/11/2009
4,586,845
4,074,038
Grants of Plan-Based Awards Table
2,750,038
6,750,041
3,250,000
Incentives ($)
Non-equity
2,375,040
3,503,393
2,050,024
Fair Value ($)
Grant Date
9,663,192
13,498,018
13,306,634
Total ($)
passed in 2009, including compensation reported for the 2007 and 2008 scal years.
from EDGAR. Note that for scal year 2009 all numbers reported in the summary compensation table follow the SEC Proxy Disclosure Enhancements rule (Release No. 33-9089)
The examples in this paper is for Gregg W. Steinhafel from Target Corporation. The tables are reported in the 2007 and 2009 proxy statements led by Target and downloaded
Gregg W. Steinhafel
Grant Date
447,680
447,680
3,503,393
Awards ($)
Awards ($)
4,425,064
Option
Stock
Estimated Future Payouts
1,235,769
2007
0
Bonus ($)
Summary Compensation Table
Estimated Payouts Under
1,345,769
2008
President
1,350,000
2009
Salary ($)
Gregg W. Steinhafel
Year
Panel B: post-2009 period example
31
# of shares
vested value
Stock Options
PBEG
realizable or present value (optional)
target payout value for non-market condition grants
Stock Options
PBEG
grant date FV
grant date FV
grant date FV
Dec. 20, 2009 - present
grant date FV
grant date FV
grant date FV
Dec. 20, 2009- present
grant date FV
grant date FV
grant date FV
targets.
of performance-based equity grants that includes grants with market or non-market performance conditions. Performance-based equity grants vest upon meeting performance
This table summarizes SEC disclosure requirements for equity based compensation reported in proxy statements as determined by 17 C.F.R. Ÿ 229.402. PBEG is the group
grant date FV
Dec. 15, 2006 -Dec. 20, 2009
Grants of Plan-Based Awards Table
ASC 718 expense
ASC 718 expense
ASC 718 expense
Dec. 15, 2006 - Dec. 20, 2009
Summary Compensation Table
Restricted Stock
Dec. 15, 1992 - Dec. 15, 2006
grant date FV
Restricted Stock
Dec. 15, 1992 - Dec. 15, 2006
Based Awards Table
Table A.2 Summary of equity compensation information reported in the Summary Compensation Table and Grants of Plan-
Table A.3 Examples of ASC 718 expense for a performance-based equity grant with an
accounting performance condition
Grant of 10MM restricted stock units with a grant date value of 8$ per share (total $80
MM). The restricted stock vests only if sales increase by 10% after 4 years. Implicit service
period is 4 years.
Scenario 1:
At the time of the grant, the rm thinks it is more probable that the company
with increase sales by 10%. At the end of year 3, the rm believes that it is not likely.
Year 1:
($80M / 4 years of service period)
Dr Compensation Expense
$20 MM
Cr Paid-in capital stock options
Year 2:
$20 MM
($80M / 4 years of service period)
Dr Compensation Expense
$20 MM
Cr Paid-in capital stock options
Year 3:
$20 MM
Reversal of compensation cost recorded in years 1 & 2
Dr Paid-in capital stock options
$40 MM
Cr Compensation Expense
Year 4:
$40 MM
No expense is recognized if the performance is not achieved
Scenario 2:
At the time of the grant, the rm believes it is not probable that sales will
increase by 10% after 4 years. But during year 3, determine that the performance condition
is likely to be met.
Year 1:
No expense is recognized
Year 2:
No expense is recognized
Year 3:
Cumulative eect of the change is recognized
Dr Compensation Expense
$60 MM
Cr Paid-in capital stock options
Year 4:
$60 MM
($80M / 4 years of service period)
Dr Compensation Expense
$20 MM
Cr Paid-in capital stock options
32
$20 MM
References:
Armstrong, C. S., Gow, I. D., Larcker, D. F., 2013. "The ecacy of shareholder voting:
Evidence from equity compensation plans". Journal of Accounting Research 51 (5), 909
950.
Cadman, B. D., Rusticus, T. O., Sunder, J., 2013. "Stock option grant vesting terms: Economic and nancial reporting determinants". Review of Accounting Studies 18 (4), 1159
1190.
Cai, J., Garner, J. L., Walkling, R. A., 2009. "Electing directors". The Journal of Finance
64 (5), 23892421.
Cai, J., Walkling, R. A., 2011. "Shareholders' say on pay: Does it create value?". Journal of
Financial and Quantitative Analysis 46 (02), 299339.
Core, J., Guay, W., 1999. "The use of equity grants to manage optimal equity incentive
levels". Journal of Accounting and Economics 28 (2), 151184.
Ertimur, Y., Ferri, F., Muslu, V., 2011. "Shareholder activism and CEO pay". Review of
Financial Studies 24 (02), 535592.
Ertimur, Y., Ferri, F., Oesch, D., 2013. "Shareholder votes and proxy advisors: Evidence
from say on pay". Journal of Accounting Research 51 (5), 951996.
FASB, 2010. ASC 718, "Compensation-stock compensation", Financial Accounting Standards Board.
Fischer, P. E., Gramlich, J. D., Miller, B. P., White, H. D., 2009. "Investor perceptions of
board performance: Evidence from uncontested director elections". Journal of Accounting
and Economics 48 (2-3), 172189.
Iliev, P., Lowry, M., 2015. "Are mutual funds active voters?". Review of Financial Studies
28 (2), 446485.
33
Jensen, M. C., Murphy, K. J., 1990. "Performance pay and top-management incentives".
Journal of Political Economy, 225264.
Lo, K., Yang, S., Zhang, J. L., 2014. "'Say-on-pay' votes and compensation practices".
Working Paper.
Morgan, A., Poulsen, A., Wolf, J., 2006. "The evolution of shareholder voting for executive
compensation schemes". Journal of Corporate Finance 12 (4), 715 737.
SEC, 1992. "Executive Compensation Disclosure", Release No. 33-6962 [57 FR 48126].
SEC, 2003. Release No. 34-48108 [68 FR 39995].
SEC, 2006. "Executive Compensation Disclosure", Release No. 33-8765 [71 FR 78338].
SEC, 2009. "Proxy Disclosure Enhancements", Release No. 33-9089 [74 FR 68334].
SEC, 2015. Press release 2017-78, http://www.sec.gov/news/pressrelease/2015-78.html.
34
35
EquityCompFV$ ($1000)
EquityCompExp$ ($1000)
AbnEquityCompFV
AbnEquityCompExp
VotesFor
DirectorN
Indep%
IndepOwn
ROA
Ret3yr
log(Delta)
#
#
#
#
#
p<
0.44
0.84
9.00
0.80
0.01
0.05
0.03
12.49
0.41
0.81
9.30
0.78
0.02
0.04
0.19
12.58
∗∗
#
0.37
#
∗∗
p<
p < 0.001
0.00
-0.01
0.02
-0.03
#
0.04
0.04
0.14
#
-0.05
-0.03
0.14
1.00
5
1.35
0.76
0.10
0.04
0.11
2.48
0.13
1.04
2.40
3629.66
3663.31
S.D.
0.21
#
-0.04
0.02
-0.00
0.02
1.00
6
11.66
-0.35
0.02
0.00
0.71
8.00
0.74
-0.03
0.14
857.50
679.89
Q1
-0.10
∗∗
-0.01
-0.03
1.00
8
#
#
0.28
0.36
1.00
9
#
0.29
1.00
10
EquityCompFV$
is the proportion of
the scal year end.
log(Delta)
Indep%
Ret3yr
IndepOwn
is the percentage of outstanding
is the stock return over the three-year period prior to
is the percentage of independent directors on the board.
is return on assets measured as net income divided by total assets.
the logarithm of the sensitivity of the CEO's equity portfolio to a 1% stock price change.
ROA
is the number of independent directors on the board.
shares owned by independent directors.
DirectorN
For votes on a proxy proposal related to executive equity compensation, dened as the number of For votes divided by the sum of all votes (For, Against and Abstain).
is the abnormal equity compensation expense estimated as the residual from equation (2) using the logarithm of equity compensation expense.
VotesFor
is
AbnEquityCompExp
AbnEquityCompFV
is the grant date fair value of equity
is the equity compensation expense disclosed in the proxy statement in thousands of dollars.
the abnormal equity compensation grant date fair value estimated as the residual from equation (2) using the logarithm of equity compensation fair value.
EquityCompExp$
1,013 CEO-year observations from ExecuComp for scal years ending on or after Dec. 15, 2006 and prior to Dec. 20, 2009.
compensation in thousands of dollars.
0.00
-0.05
-0.00
0.05
1.00
7
13.44
0.51
0.08
0.01
0.88
11.00
0.90
1.02
1.72
4321.83
4148.82
Q3
and rm characteristics in Panel A and correlation coecients in Panel B. The sample includes
0.01, #
-0.06
-0.08
-0.04
-0.05
0.18
∗
0.08
-0.05
-0.12
1.00
-0.00
-0.10
#
0.99
0.38
4
2130.83
1.00
3
2008.88
3325.17
Median
3144.52
Mean
VotesFor
0.05, ∗∗
#
0.51
#
0.44
∗
0.04
0.04
-0.11
0.20
0.02
0.05
-0.11
0.18
0.24
#
0.24
-0.02
#
0.31
0.08
∗∗
1.00
2
-0.03
0.19
#
0.33
#
0.77
#
1.00
1
This table presents the summary statistics of CEO equity compensation,
11
10
9
8
7
6
5
4
3
2
1
Panel B: Correlation table
EquityCompFV$ ($1000)
EquityCompExp$ ($1000)
AbnEquityCompFV
AbnEquityCompExp
VotesFor
DirectorN
Indep%
IndepOwn
ROA
Ret3yr
log(Delta)
Panel A: Summary statistics (N=1013)
Table 1: Descriptive statistics prior to SEC Proxy Disclosure Enhancements rule
Table 2: Summary statistics of equity compensation measures pre- and post-2009
pre-2009
EquityCompFV$ ($1000)
EquityCompExp$ ($1000)
AbnEquityCompFV
AbnEquityCompExp
VotesFor
post-2009
Mean
Median
Mean
Median
3144.52
2008.88
3499.49
2225.69
3325.17
2130.83
-
-
0.38
0.99
0.32
0.78
0.41
0.44
-
-
0.81
0.84
0.85
0.88
1013
N
1434
This table presents the summary statistics of CEO equity compensation and
VotesFor
the sample period before and after the
2009 SEC Proxy Disclosure Enhancements rule. The sample includes 2,447 CEO-year observations from ExecuComp for scal
year ending between Dec. 15, 2006 and Dec. 31, 2013.
thousands of dollars.
dollars.
EquityCompExp$
AbnEquityCompFV
EquityCompFV$
is the grant date fair value of equity compensation in
is the equity compensation expense disclosed in the proxy statement in thousands of
is the abnormal equity compensation grant date fair value estimated as the residual from equation
(2) using the logarithm of equity compensation fair value.
AbnEquityCompExp
is the abnormal equity compensation expense
estimated as the residual from equation (2) using the logarithm of equity compensation expense.
VotesFor
is the proportion of
For votes on a proxy proposal related to executive equity compensation, dened as the number of For votes divided by the
sum of all votes (For, Against and Abstain).
36
Table 3: Use of CEO equity grant date fair value and expense in voting
V otesF or
= α0 + α1 AbnEquityCompF V + α2 AbnEquityCompExp
+α3 DirectorN + α4 Indep% + α5 IndepOwn + α6 ROA
+α7 Ret3yr + α8 log(Delta) + (1)
(2)
(3)
VARIABLES
VotesFor
VotesFor
VotesFor
AbnEquitycompFV
-0.005***
-0.003*
(0.006)
(0.062)
AbnEquitycompExp
DirectorN
Indep%
IndepOwn
ROA
Ret3yr
log(Delta)
Constant
-0.010*
(0.019)
(0.069)
0.006*
0.006*
0.006*
(0.077)
(0.100)
(0.094)
-0.033
-0.017
-0.016
(0.478)
(0.706)
(0.709)
-0.153
-0.148
-0.159
(0.184)
(0.163)
(0.143)
0.144**
0.148**
0.147**
(0.025)
(0.026)
(0.026)
-0.003
-0.002
-0.003
(0.670)
(0.760)
(0.689)
-0.003
-0.002
-0.003
(0.310)
(0.331)
(0.305)
0.835***
0.820***
0.824***
(0.000)
(0.000)
(0.000)
Yes
Yes
Yes
0.070
0.072
0.075
Year, industry and proposal type FE
Adj. R-squared
-0.013**
*** p<0.01, ** p<0.05, * p<0.10
This table reports results from estimating OLS regression of
VotesFor
on equity compensation measures and control variables.
The model includes unreported year, industry and proposal type xed eects. The sample includes 1,013 CEO-year observations
from ExecuComp for scal years ending on or after Dec. 15, 2006 and prior to Dec. 20, 2009.
AbnEquityCompFV
is the abnormal
equity compensation grant date fair value estimated as the residual from equation (2) using the logarithm of equity compensation
fair value.
AbnEquityCompExp
is the abnormal equity compensation expense estimated as the residual from equation (2) using
the logarithm of equity compensation expense.
VotesFor
is the proportion of For votes on a proxy proposal related to executive
equity compensation, dened as the number of For votes divided by the sum of all votes (For, Against and Abstain).
DirectorN
board.
is the number of independent directors on the board.
IndepOwn
Indep%
is the percentage of independent directors on the
is the percentage of outstanding shares owned by independent directors.
net income divided by total assets.
Ret3yr
ROA is return on assets measured as
is the stock return over the three-year period prior to the scal year end.
log(Delta)
the logarithm of the sensitivity of the CEO's equity portfolio to a 1% stock price change. Robust standard errors clustered by
industry are reported in parentheses.
37
Table 4: Use of CEO equity grant date fair value in voting pre- and post-2009
V otesF or = γ0 + γ1 AbnEquityCompF Vpre + γ2 AbnEquityCompF Vpost
+γ3 AbnEquityCompExppre + γ4 P ost + γ5 DirectorN + γ6 Indep%
+γ7 IndepOwn + γ8 ROA + γ9 Ret3yr + γ10 log(Delta) + (1)
VARIABLES
VotesFor
AbnEquityCompF Vpre
-0.003**
AbnEquityCompF Vpost
-0.006**
AbnEquityCompExppre
-0.011**
(0.001)
(0.002)
(0.005)
Post
-0.006
(0.009)
DirectorN
0.006**
(0.002)
Indep%
0.027
(0.038)
IndepOwn
-0.138
(0.099)
ROA
0.104**
(0.042)
Ret3yr
0.006
(0.005)
log(Delta)
-0.004**
Constant
0.807***
(0.002)
(0.026)
Year, industry and proposal type FE
Yes
Adj. R-squared
0.114
γ1=γ2
0.238
*** p<0.01, ** p<0.05, * p<0.10
This table reports results from estimating OLS regression of
VotesFor
on equity compensation measures and control variables.
The model includes unreported year, industry and proposal type xed eects. The sample includes 2,447 CEO-year observations
from ExecuComp for scal years ending between Dec. 15, 2006 and Dec. 31, 2013.
AbnEquityCompFV
is the abnormal equity
compensation grant date fair value estimated as the residual from equation (2) using the logarithm of equity compensation fair
value.
AbnEquityCompExp
is the abnormal equity compensation expense estimated as the residual from equation (2) using the
logarithm of equity compensation expense.
VotesFor
is the proportion of For votes on a proxy proposal related to executive
equity compensation, dened as the number of For votes divided by the sum of all votes (For, Against and Abstain).
DirectorN
board.
is the number of independent directors on the board.
IndepOwn
Indep%
is the percentage of independent directors on the
is the percentage of outstanding shares owned by independent directors.
net income divided by total assets.
Ret3yr
ROA is return on assets measured as
is the stock return over the three-year period prior to the scal year end.
log(Delta)
the logarithm of the sensitivity of the CEO's equity portfolio to a 1% stock price change. Robust standard errors clustered by
industry are reported in parentheses.
38
39
42.14
42.52
40.43
41.47
3936
3936
3830
3830
36.12
36.94
40.00
44.00
36.00
36.00
36.00
36.00
Post-2009
Mean Median
Post-2009
Mean Median
39.52
36.09
43.19
39.00
3784
3784
N
N
6264
6264
-0.37
-0.63
-1.97
-2.06
-0.78
-0.81
Di.(Mean)
Di.(Mean)
-1.34
-2.02
0.20
0.03
0.00
0.00
0.02
0.02
-6.59
-4.00
0.00
-1.00
0.00
0.00
Post - Pre
Di.(Median)
p-value
Post - Pre
Di.(Median)
0.00
-2.29
0.00
-9.00
p-value
0.08
0.03
0.00
0.00
0.04
0.08
VestingMax
is the maximum vesting term of all grants for a rm-year measured in months.
year ending on or after Dec. 20, 2009.
sample includes all rm-year observations with scal years ending between Dec. 15, 2006 and Dec. 20, 2009. The post-2009 sample includes all rm-year observations with scal
stock grants, and Option includes option grants. Results from t-tests and median tests of vesting terms across the pre- and post-2009 samples are also included. The pre-2009
Panel A includes all equity grants and Panel B reports the results by equity grant type. The PBEG category includes performance-based equity grants, Stock includes restricted
is the value weighted average vesting term for a rm-year measured in months.
VestingVW
p-value
0.00
0.00
p-value
This table presents the summary statistics and univariate tests of CEO equity grant vesting terms for scal years ending between Dec. 15, 2006 and Dec. 31, 2013.
Panel B: By equity type
Pre-2009
N
Mean Median
PBEG
VestingVW
1460 36.90
36.00
VestingMax
1460 37.75
36.00
Stock
VestingVW
1899 42.41
36.00
VestingMax
1899 43.53
37.00
Option
VestingVW
2441 42.51
46.59
VestingMax
2441 43.15
48.00
Panel A: All equity grants
Pre-2009
All
N
Mean Median
VestingVW
3386 40.86
38.38
VestingMax
3386 45.21
48.00
Table 5: Contracting consequences of SEC Proxy Disclosure Enhancements rule
40
High
High-Low
High
Low
High-Low
1426
675
44.73
48.42
2600
1227
42.91
43.78
Post-2009
N
Mean
1917 38.19
1910 40.66
-1.82
-4.63
-2.82
0.00
0.00
0.00
Post - Pre
Di. (Mean) p-value
-0.65
0.14
-2.48
0.00
-1.83
0.00
DVest2006
indicates values of
DVest2006
above (below) the median.
VestingVW
is
last column reports p-values based on t-statistics for tests of dierences in vesting measures between groups.
is the maximum vesting term of all grants for a rm-year measured in months. The
High (Low)
VestingMax
measures the change in vesting terms from period (1) to (2), and
the value weighted average vesting term for a rm-year measured in months.
30, 2013.
years ending between Dec. 15, 2005 and Dec. 15, 2006; (2) scal years ending between Dec. 15, 2006 and Dec. 20, 2009; (3) scal years ending between Dec. 20, 2009 and Dec.
This table presents summary statistics and univariate test results of CEO equity grant vesting terms for a subsample with available vesting data during three periods: (1) scal
VestingMax
VestingVW
Low
DVest2006
Pre-2009
N
Mean
1036 38.84
1065 43.14
Table 6: Cross-sectional tests of contracting consequences
Table 7: Use of CEO equity grant date fair value and expense in voting - eects of dierences between the
two measures
V otesF or = β0 + β1 AbnEquityCompF VhighExp + β2 AbnEquityCompF VhighF V
+β3 AbnEquityCompExphighExp + β4 AbnEquityCompExphighF V
+β5 DirectorN + β6 Indep% + β7 IndepOwn + β8 ROA
+β9 Ret3yr + β10 log(Delta) + (1)
AbnEquityCompF VhighExp
AbnEquityCompF VhighF V
AbnEquityCompExphighExp
AbnEquityCompExphighF V
DirectorN
Indep%
IndepOwn
ROA
Ret3yr
log(Delta)
Constant
Year, industry and proposal type FE
(2)
0.001
0.002
(0.001)
(0.002)
-0.022***
-0.022***
(0.004)
(0.006)
-0.021***
-0.015**
(0.003)
(0.006)
0.008
0.002
(0.012)
(0.010)
0.005
0.005
(0.003)
(0.003)
-0.026
-0.029
(0.047)
(0.045)
-0.175*
-0.171
(0.093)
(0.102)
0.152**
0.151**
(0.058)
(0.057)
-0.003
-0.003
(0.007)
(0.007)
-0.003
-0.003
(0.002)
(0.002)
0.858***
0.871***
(0.048)
(0.052)
Yes
Yes
Adj. R-squared
0.087
0.083
β1=β3
β2=β4
0.000
0.012
0.095
0.146
*** p<0.01, ** p<0.05, * p<0.10
This table reports results from estimating OLS regression of
ables.
VotesFor
on equity compensation measures and control vari-
The model includes unreported year, industry and proposal type xed eects.
The sample includes 1,013 CEO-year
observations from ExecuComp for scal year ended on or after Dec. 15, 2006 and prior to Dec. 20, 2009.
highExp
indicates
EquityCompFV$
EquityCompFV$<=EquityCompExp$
and
highFV
indicates
EquityCompFV$ >EquityCompExp$,
is the grant date fair value of equity compensation in thousands of dollars, and
compensation expense disclosed in the proxy statement in thousands of dollars. In column (2)
CompFV<=AbnEquityCompExp
and
highFV
indicates
In Column (1),
EquityCompExp$
highExp
indicates
where
is the equity
AbnEquity-
AbnEquityCompFV>AbnEquityCompExp. AbnEquityCompFV
is the
abnormal equity compensation grant date fair value estimated as the residual from equation (2) using the logarithm of equity
compensation fair value.
AbnEquityCompExp
is the abnormal equity compensation expense estimated as the residual from
41
Table 7, continued.
equation
when
(2)
using
highExp =1,
the
and
logarithm
0
of
equity
otherwise.
compensation
when
highFV =1,
executive equity compensation.
independent directors on the board.
when
and 0 otherwise.
DirectorN
highExp =1,
VotesFor
log(Delta)
and
when
highFV =1,
0 otherwise.
0
otherwise.
AbnEquityCompExphighFV =
is the number of independent directors on the board.
IndepOwn
and
is the proportion of For votes on a proxy proposal related to
Indep%
is the percentage of
is the percentage of outstanding shares owned by independent directors.
is return on assets measured as net income divided by total assets.
scal year end.
AbnEquityCompFV highExp =AbnEquityCompFV
AbnEquityCompFV =AbnEquityCompFV
AbnEquityCompExphighExp =AbnEquityCompExp
AbnEquityCompExp
expense.
Ret3yr
ROA
is stock return over three-year period prior to the
is the logarithm of the sensitivity of the CEO's equity portfolio to a 1% stock price change. Robust
standard errors clustered by industry are reported in parentheses.
42