The impact of incentives on CEO compensation and firm performance

A significant component of a management control system is the incentive mechanism and motivational underpinning of compensation contracts. Most executives are rewarded in the form of cash and company stock. Our data indicate that over 82.5 percent of the observations include a bonus pay to CEOs and an even larger percentage, about 94.5 percent, have stock option grants. Our analyses indicate that the means of market-based returns are significantly larger for companies with no stock option incentives. However, the accounting-based returns do not appear to be significantly influenced by stock-based rewards. (JEL: J30, G30, L21)