TSR, Executive Compensation, and Firm Performance

Source: Hassan Enayati, Kevin Hallock, and Linda Barrington, Cornell University, A Brief Prepared by the Institute for Compensation Studies ILR School, September 29, 2015

– Particularly since the recent recession, the general public and policy makers have been interested in aligning the incentives of executives with the incentives of shareholders.
– Embedding Total Shareholder Return (TSR) target metrics into top executive compensation plans have been described as a simple and direct tool to align incentives.
– Despite the increased popularity of such TSR plans, the empirical evidence supporting the expansion of this compensation strategy is limited.
– This brief aims to shed light on whether the inclusion of TSR measures in long-term incentive plans result in improved firm performance.
Related:
Paying CEOs fat bonuses for stock performance doesn’t work — Cornell study
Source: Lawrence Lewitin, Yahoo Finance, October 2, 2015