Gopalan, Milbourn, and Thakor are from Olin Business School, Washington University in St. Louis, and Song is from Smeal College of Business, Pennsylvania State University. The authors thank Campbell Harvey (the Editor), an anonymous Associate Editor, an anonymous referee, John Graham (the Co-Editor), Kerry Back, Mark Chen, Jeffery Coles, Laura Lindsey, Richard Mahoney, Vikram Nanda, Wei Xiong, and seminar participants at Arizona State University, Georgia State University, Rice University, Southern Methodist University, University of Georgia, University of Houston, University of Illinois at Urbana-Champaigne, University of Missouri–St. Louis, University of Notre Dame, the 2010 Olin annual conference on corporate finance, Frontiers in Finance 2011 conference, the 2011 Financial Intermediation Research Society (FIRS) annual conference and our discussant Denis Sosyura, the 2011 Hong Kong University of Science and Technology finance symposium and our discussant Rik Sen, and the 2012 American Finance Association (AFA) annual meeting and our discussant Katharina Lewellen for very helpful comments.
Duration of Executive Compensation
Article first published online: 10 NOV 2014
© 2014 the American Finance Association
The Journal of Finance
Volume 69, Issue 6, pages 2777–2817, December 2014
How to Cite
GOPALAN, R., MILBOURN, T., SONG, F. and THAKOR, A. V. (2014), Duration of Executive Compensation. The Journal of Finance, 69: 2777–2817. doi: 10.1111/jofi.12085
- Issue published online: 10 NOV 2014
- Article first published online: 10 NOV 2014
- Accepted manuscript online: 26 JUL 2013 10:19AM EST
- Manuscript Accepted: 14 MAY 2013
- Manuscript Received: 28 FEB 2012
Extensive discussions on the inefficiencies of “short-termism” in executive compensation notwithstanding, little is known empirically about the extent of such short-termism. We develop a novel measure of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short-term. We calculate pay duration in various industries and document its correlation with firm characteristics. Pay duration is longer in firms with more growth opportunities, more long-term assets, greater R&D intensity, lower risk, and better recent stock performance. Longer CEO pay duration is negatively related to the extent of earnings-increasing accruals.