Incentive alignment, CEO pay level, and firm performance: A case of "headsI win, tails you lose"?

In recent years, rewarding CEOs with long-term forms of compensation (e.g., stock options, performance plans, restricted stock) has become more popula r than using year-end pay adjustments. Surprisingly, there is little empiri cal evidence to support the benefits of this trend. This study fo found tha t the benefits of long-term compensation flowed primarily to CEOs as they r eceived significantly greater levels of total compensation than CEOs in fir ms that emphasized year-end pay adjustments. Paradoxically, however, firms that emphasized year-end pay adjustments performed significantly better tha n firms that were heavy users of long-term forms of contingent compensation . (C) 2001 John Wiley & Sons, Inc.