TY - JOUR
T1 - CEO performance targets
T2 - The impact of Big 4 accounting firms versus other compensation consultants
AU - Bachmann, Rebecca L.
AU - Rasool, Sameera
AU - Spiropoulos, Helen
PY - 2024/10/7
Y1 - 2024/10/7
N2 - Using a sample of ASX 500 firms over the 2005–2019 period, we document substantial variation in the use of performance targets within Chief Executive Officer (CEO) compensation contracts, contrasting firms advised by Big 4 accounting entities with other compensation consulting firms. Firms that engage a Big 4 accounting firm are more likely to implement explicit non-financial performance targets within the short-term incentive plan, effectively minimising opportunities for post hoc justification. They also favour the incorporation of relative performance targets that mitigate pay for luck in the long-term incentive plan. Firms that engage a Big 4 accounting firm demonstrate a similar pay-for-performance relation to firms that do not engage a compensation consultant, while firms engaging non-Big 4 consultants exhibit a lower pay-for-performance relation. Our findings suggest that Big 4 accounting firms provide compensation recommendations that encourage the alignment of interests between managers and shareholders.
AB - Using a sample of ASX 500 firms over the 2005–2019 period, we document substantial variation in the use of performance targets within Chief Executive Officer (CEO) compensation contracts, contrasting firms advised by Big 4 accounting entities with other compensation consulting firms. Firms that engage a Big 4 accounting firm are more likely to implement explicit non-financial performance targets within the short-term incentive plan, effectively minimising opportunities for post hoc justification. They also favour the incorporation of relative performance targets that mitigate pay for luck in the long-term incentive plan. Firms that engage a Big 4 accounting firm demonstrate a similar pay-for-performance relation to firms that do not engage a compensation consultant, while firms engaging non-Big 4 consultants exhibit a lower pay-for-performance relation. Our findings suggest that Big 4 accounting firms provide compensation recommendations that encourage the alignment of interests between managers and shareholders.
U2 - 10.1177/03128962241270838
DO - 10.1177/03128962241270838
M3 - Article
SN - 0312-8962
JO - Australian Journal of Management
JF - Australian Journal of Management
ER -