aktuelle Publikationen (ab 2015)

An analysis of net-outcome contracting with applications to equity-based compensation

Author(s)
Christian Hofmann, Steven Huddart, Thomas Pfeiffer
Abstract

Options, restricted stock, bonuses tied to total shareholder return, and similar equity-based compensation contracts stipulate payments that depend on stock price. Any such contract is a function of shareholder value net of the compensation payment, because stock price (1) is proportional to this net value or “net outcome” and (2) anticipates compensation-related payments and dilution. The net outcome, in turn, is reduced by the payment and so depends on the contract. Standard moral hazard analyses, wherein contractual payments are based on the gross outcome before any payment to the agent, overlook this dependency. We characterize the optimal net-outcome contract, describe its shape and pay-for-performance sensitivity, contrast it with the optimal gross-outcome contract, and discuss implications for equity-based compensation arrangements.

Organisation(s)
Department of Accounting, Innovation and Strategy
External organisation(s)
Pennsylvania State University, Ludwig-Maximilians-Universität München
Journal
Review of Accounting Studies
Volume
28
Pages
1657-1689
No. of pages
33
ISSN
1380-6653
DOI
https://doi.org/10.1007/s11142-021-09666-w
Publication date
2021
Peer reviewed
Yes
Austrian Fields of Science 2012
502006 Controlling, 502033 Accounting
Portal url
https://ucris.univie.ac.at/portal/en/publications/an-analysis-of-netoutcome-contracting-with-applications-to-equitybased-compensation(ca8eeb5a-d956-422c-84c0-d7cbf4c93415).html