CEO compensation, option incentives, and information disclosure

Martin J. Conyon, Graham V. Sadler

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

This paper examines the impact of information disclosure on the valuation of CEO options and the incentives created by those options. Prior executive compensation research in the US has made assumptions about key input variables that can affect the calculation of option values and financial incentives. Accordingly, biases may have ensued due to incomplete information disclosure about noncurrent option grants. Using new data on a sample of UK CEOs, we value executive option holdings and incentives for the first time and estimate the levels of distortion created by the less than complete US-style disclosure requirements. We also investigate the levels of distortion in the UK for the minority of companies that choose to reveal only partial information. Our results suggest that there have to date been few economic biases arising from less than complete information disclosure. Furthermore, we demonstrate that researchers using US data, who made reasonable assumptions about the inputs of noncurrent option grants, are unlikely to have made significant errors when calculating CEO financial incentives or option wealth. However, the recent downturn in the US stock market could result in the same assumptions, producing exaggerated incentive estimates in the future.

Original languageEnglish
Pages (from-to)251-277
Number of pages27
JournalReview of Financial Economics
Volume10
Issue number3
DOIs
Publication statusPublished - 16 Jan 2002
Externally publishedYes

Fingerprint

Incentives
CEO compensation
Information disclosure
Chief executive officer
Financial incentives
Executive compensation
Wealth
Complete information
Minorities
Financial options
Executive options
Option value
Economics
Incomplete information
Partial information
Disclosure requirements
Stock market

Keywords

  • CEO compensation
  • Executive options
  • Information disclosure

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

CEO compensation, option incentives, and information disclosure. / Conyon, Martin J.; Sadler, Graham V.

In: Review of Financial Economics, Vol. 10, No. 3, 16.01.2002, p. 251-277.

Research output: Contribution to journalArticle

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