Principal-agent theory suggests that a manager should be paid relative to a benchmark that removes the effect of market or sector performance on the firm's own performance. Recently, it has been argued that we do not observe such indexation in the data because executives can set pay in their own...

Academics have long argued that incentive contracts for executives should be indexed to remove the influence of exogenous market factors. Little evidence has been found that firms engage in such practices, also termed quot;relative performance evaluationquot;. We argue that firms may not gain...

Employee stock options represent a significant potential source of dilution for shareholders in many firms. It is well known that reported earnings systematically understate the associated costs, but an efficient stock market will show no such bias. If by contrast stock prices fail to fully...

This paper explores the efficiency with which value-relevant information disclosed by firms makes its way into stock prices over the period 1994-2007. Specifically, we explore whether investors incorporate disclosures related to employee stock option grants into their valuations given that these...

Little evidence exists that firms index executive compensation to remove the influence of marketwide factors. We argue that executives can, in principle, replicate such indexation in their private portfolios. In support, we find that market risk has little effect on the use of stock-based pay...

In organizations, ideas are often delegated for evaluation as a means of efficiently aggregating multiple information signals. However, those who delegate often find it impossible to separate the evaluation of the ideas they delegate from the evaluation of abilities of those delegated the task...