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Value-Based CEO Equity Grants

Published online by Cambridge University Press:  23 January 2025

Jin XuOpen the ORCID record for Jin Xu[Opens in a new window],
Pengfei Ye and
Cheng Zhang
Jin Xu*
Affiliation:
Virginia Tech Pamplin College of Business
Pengfei Ye
Affiliation:
Virginia Tech Pamplin College of Business pye@vt.edu
Cheng Zhang
Affiliation:
Shanghai University of Finance and Economics zhangcheng@mail.shufe.edu.cn
*
xujin@vt.edu (corresponding author)
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Abstract

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We document firms often determine CEO equity grants based on a predetermined dollar value (value-based equity grant) instead of on the number of shares (share-based grant). Value-based equity grants weaken the relationship between stock performance and CEO equity pay, lower CEO portfolio delta, and slow firms’ investment in R&D. We find that retention pressure is a key reason for the use of value-based equity pay, while governance could also matter. Overall, this paper alerts boards to the unintended consequences of pursuing a target pay level or pay structure because such practices can lead to value-based equity grants in CEO compensation.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 7 , November 2025, pp. 3514 - 3550
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Kai Li (the editor), an anonymous referee, Don Bowen, Felipe Cabezon, Zhaohui Chen (Discussant), David Denis, Diane Denis, Roger Edelen, Eli Fich, Michael Gallmeyer, Iftekhar Hasan, Raman Kumar, Katharina Lewellen, Michelle Lowry, Andrew McKinlay, S. Drew Peabody (discussant), Yiming Qian, Vijay Singal, Yihui Wang, Jun Yang and participants at the Boca Conference, Commonwealth Finance Conference, Fordham University, University of Wisconsin-Milwaukee, and Virginia Tech for great suggestions. All errors remain our own.

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