Date of Award

Spring 1-1-2017

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

First Advisor

Yonca Ertimur

Second Advisor

Alan Jagolinzer

Third Advisor

Christopher Armstrong

Fourth Advisor

Jonathan Rogers

Fifth Advisor

Frances Tice

Abstract

I explore the determinants of performance share awards (PSAs), focusing on the factors associated with the recent increase in PSA use, and the effects of PSA use on key characteristics of compensation, pay levels and pay-for-performance sensitivity. PSAs are equity awards for which the number of shares that vest varies based on performance compared to pre-determined goals. I find that poor Say-on-Pay voting outcomes are associated with more aggressive adoption of PSAs and that PSAs have primarily replaced stock options in equity awards. Compared to stock options, PSAs have not affected ex ante compensation levels (grant date fair value), but have resulted in ex post payouts that are less variable and no lower. Moreover, PSA payouts increase in measures of CEO power. Collectively, these results tend to support the hypothesis that PSAs are being used to disguise compensation rather than improve incentive alignment.

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