Response to legislation limiting the deductibility of executive compensation

Persistent Link:
http://hdl.handle.net/10150/282788
Title:
Response to legislation limiting the deductibility of executive compensation
Author:
Teruya, Jenny Naomi, 1962-
Issue Date:
1998
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
Three questions regarding the effectiveness of Section 162(m) are addressed by this dissertation: (1) did Section 162(m) target the firms who were paying their executives excessive compensation that was not related to performance? (2) did Section 162(m) achieve its desired result of reducing compensation levels and increasing pay-performance sensitivities? and (3) did stockholders benefit from Section 162(m)? The empirical results indicate that firms subject to Section 162(m) had higher levels of compensation, even after controlling for firm size, performance, industry, growth opportunities and CEO ownership. However, the cash compensation in these firms was more sensitive to firm performance. Therefore, it is questionable whether Section 162(m) affected the intended target. Firms with compensation in excess of 1 million were required to disclose their response to Section 162(m) in their 1994 proxy statements. They had three alternatives: (1) "qualify" compensation in excess of the 1 million by making it contingent on a performance measure, (2) defer excess compensation to a period when it would be deductible, and (3) forego the deduction. Firms were grouped by their response and their compensation levels, pay-performance sensitivities and pay mix were analyzed. Compensation levels increased for all three groups, primarily from the use of more stock options. This also increased the proportion of stock-based compensation (pay mix). Pay-performance sensitivities decreased for qualifying firms which runs counter to the intent of Section 162(m). On the other hand, firms who chose to forego the deduction demonstrate an increase in pay-performance sensitivities. Finally, the evidence indicates a positive market reaction to the announcement that a firm would qualify their compensation or forego the deduction. A negative reaction is documented for deferring firms. This seems to indicate that, overall, stockholders did benefit from Section 162(m).
Type:
text; Dissertation-Reproduction (electronic)
Keywords:
Business Administration, Accounting.; Business Administration, General.; Political Science, Public Administration.
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Management
Degree Grantor:
University of Arizona
Advisor:
Dhaliwal, Dan

Full metadata record

DC FieldValue Language
dc.language.isoen_USen_US
dc.titleResponse to legislation limiting the deductibility of executive compensationen_US
dc.creatorTeruya, Jenny Naomi, 1962-en_US
dc.contributor.authorTeruya, Jenny Naomi, 1962-en_US
dc.date.issued1998en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThree questions regarding the effectiveness of Section 162(m) are addressed by this dissertation: (1) did Section 162(m) target the firms who were paying their executives excessive compensation that was not related to performance? (2) did Section 162(m) achieve its desired result of reducing compensation levels and increasing pay-performance sensitivities? and (3) did stockholders benefit from Section 162(m)? The empirical results indicate that firms subject to Section 162(m) had higher levels of compensation, even after controlling for firm size, performance, industry, growth opportunities and CEO ownership. However, the cash compensation in these firms was more sensitive to firm performance. Therefore, it is questionable whether Section 162(m) affected the intended target. Firms with compensation in excess of 1 million were required to disclose their response to Section 162(m) in their 1994 proxy statements. They had three alternatives: (1) "qualify" compensation in excess of the 1 million by making it contingent on a performance measure, (2) defer excess compensation to a period when it would be deductible, and (3) forego the deduction. Firms were grouped by their response and their compensation levels, pay-performance sensitivities and pay mix were analyzed. Compensation levels increased for all three groups, primarily from the use of more stock options. This also increased the proportion of stock-based compensation (pay mix). Pay-performance sensitivities decreased for qualifying firms which runs counter to the intent of Section 162(m). On the other hand, firms who chose to forego the deduction demonstrate an increase in pay-performance sensitivities. Finally, the evidence indicates a positive market reaction to the announcement that a firm would qualify their compensation or forego the deduction. A negative reaction is documented for deferring firms. This seems to indicate that, overall, stockholders did benefit from Section 162(m).en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.subjectBusiness Administration, Accounting.en_US
dc.subjectBusiness Administration, General.en_US
dc.subjectPolitical Science, Public Administration.en_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.disciplineManagementen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorDhaliwal, Danen_US
dc.identifier.proquest9912091en_US
dc.identifier.bibrecord.b3911854xen_US
All Items in UA Campus Repository are protected by copyright, with all rights reserved, unless otherwise indicated.