Scott B Jackson
University of South Carolina
Austin Reitenga
The University of Texas at San Antonio
Abstract: In this study, we examine the relation between accounting fundamentals and executivesÂ’ bonus compensation. Using data for approximately 1,300 firms over the 1995 through 2000 period, we find that accounting fundamentals explain substantially more variation in executivesÂ’ bonus compensation than either accounting earnings or stock returns. Further, we find that accounting fundamentals are weighted more heavily when accounting earnings are a relatively noisy measure of firm performance. Together, our results suggest that compensation research using earnings as the only accounting-based performance measure may significantly understate the relative importance of accounting information in incentive contracts.
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