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An International Meeting of American Accounting
Association
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Equity Deferral Elections by Corporate Outside Directors |
Francesca Franco
The Wharton School University of Pennsylvania
Abstract: In this paper I investigate the circumstances under which outside directors voluntarily increase the risk profile of their compensation packages. I address this question by studying “equity deferral elections”, which consist in the choice to convert and defer current cash compensation into equity. These elections are particularly interesting given the substantial alteration they may cause in the original compensation contract, by increasing the portion of director compensation at risk. I examine these elections using a sample of firms that offered equity deferral options to corporate directors between 1998 and 2003. I find associations between the election to defer and three sets of variables proxying for: the level of incentive alignment implicit in director compensation contracts, directors’ professional profile and personal wealth diversification, the expectations directors may have about firm’s future results.