Linking pay to performance - compensation proposals in the S&P 500

We study the proposal of manager-sponsored compensation plans linking pay t o performance by S&P 500 firms in the 1990s. We examine the market percepti on of these proposals and the characteristics of the firms that propose the m. Shareholders gain at the announcement of the plans, especially when the plans are directed toward the firm's top executives. Proposing firms are th ose that can most benefit from the plans, given their asset type and agency considerations. Firms with more potential agency costs have the highest vo te-for percentages for the plans. However, shareholders are less approving of plans with negative features such as high dilution levels. Our work sugg ests that stock-based compensation plans are helpful in improving manageria l efforts to increase shareholder wealth. (C) 2001 Elsevier Science S.A. Al l rights reserved.