Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5086935 | Journal of Accounting and Economics | 2008 | 29 Pages |
Abstract
This paper examines multi-period compensation contracts when retirement is anticipated. Short-term contracts in long-term employment relationships are equivalent to a long-term renegotiation-proof contract. The dynamic of incentive rates is determined by (i) how and in which periods managerial effort affects the contractible performance measures; and by (ii) the time-series correlation of error terms in performance reports. The model explains why long-term investments can decrease while incentive rates increase as managers approach retirement. Earnings persistence is negatively associated to earnings-based incentive rates but, towards retirement, high earnings persistence implies increasing earnings-based incentive rates.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Florin Åabac,