Incentive and Tax Effects of Executive Compensation Plans
- 1 December 1982
- journal article
- research article
- Published by SAGE Publications in Australian Journal of Management
- Vol. 7 (2) , 139-157
- https://doi.org/10.1177/031289628200700204
Abstract
The ability of two (non-mutually exclusive) potential explanations for executive compensation plans is examined. One is that the plans reduce the combined tax liability of the corporation and its managers. The other is that the plans encourage the managers to maximize the value of the firm. It is found that the tax effect can explain some of the popularity of compensation plans, some of the variation in their use across firms, and the timing of changes in the provisions of the plans. However, there are variations in the cross-sectional use of the plans which cannot be explained by taxes, which can be explained by incentive effects.Keywords
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