Do Firms Replenish Executives' Incentives After Equity Sales?
Speaker
Abstract
| Boards grant executives equity to align their incentives with those of shareholders. Yet executive equity sales are common | 60 percent of executives sell _rm equity during their tenure | and can cause an executive's holdings in the _rm to become suboptimally low. I empirically examine whether boards restore a selling executive's incentives by shifting the composition of his subsequent pay toward more equity. Firm-level changes can cause executives to sell equity and simultaneously reduce their need for incentives. I account for such variables by comparing executives who sell equity to other top executives at the same _rm who do not sell. I _nd that boards grant similar pay to selling and non-selling executives at the same _rm, and replenish at most 10 percent of incentives lost due to a sale. My results suggest that boards do not maintain executives' incentives at an optimal level, as predicted by e_cient contracting theory. |
| Contact information: |
| Myra Lissenberg |
