Trading away incentives

Arbeitspapier

Equity pay has been the primary component of managerial compensation packages at US public firms since the early 1990s. Using a comprehensive sample of top executives from 1992-2020, we estimate to what extent they trade firm equity held in their portfolios to neutralize increments in ownership due to annual equity pay. Executives accommodate ownership increases linked to options awards. Conversely, increases in stock holdings linked to option exercises and restricted stock grants are largely neutralized through comparable sales of unrestricted shares. Variation in stock trading responses across executives hardly appears to respond to diversification motives. From a theoretical standpoint, these results challenge (i) the common, generally implicit assumption that managers cannot undo their incentive packages, (ii) the standard modeling practice of treating different equity pay items homogeneously, and (iii) the often taken for granted crucial role of diversification motives in managers' portfolio choices.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWH Discussion Papers ; No. 23/2022

Classification and Topics

• Classification: Wirtschaft ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Compensation Packages; Payment Methods ; Personnel Management; Executives; Executive Compensation ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: dynamic contracting ; equity incentives ; executive compensation ; hedging ; insider trading

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Colonnello, Stefano ; Curatola, Giuliano Antonio ; Xia, Shuo
• Event: Veröffentlichung
• (who): Halle Institute for Economic Research (IWH)
• (where): Halle (Saale)
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/265426
• Last update: 10.03.2025, 11:41 AM CET