Accounting and Equity-Based Compensation

On the Influence and Effectiveness of IFRS 2

by Alexander Merz
Doctoral thesis
Date of Examination:2014-03-24
Date of issue:2014-04-03
Advisor:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Robert Gillenkirch
Referee:Prof. Dr. Michael Wolff
Persistent Address: http://dx.doi.org/10.53846/goediss-4442

 

 

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Abstract

English

Executive compensation is still at the forefront of not only academic research, but also policy initiatives, news stories, and nationwide discussions. Much of the intensity of the discussion has been caused by the steep increase in executive pay, especially over the 1990s when total realized CEO compensation almost quadrupled (Murphy 1999). Especially stock options have effected much of the escalation in executive pay (Hall & Liebman 1998) and ever since there has been a seemingly endless debate over the usefulness of equity-based instruments. The introduction of a new accounting standard, IFRS 2, has generated new research possibilities in this area. Not only do companies have to now expense all forms equity-based compensation, they also have to disclose the fair value and the valuation. This thesis will investigate if the introduction of a new accounting standard has an influence on equity-based payment practices and if so, it will allow for a study of the fine structure of the use of equity-based instruments which may even enable conclusions about the three latent rationales behind the popularity of executive stock options. Further, it will analyze the effectiveness of IFRS 2 in terms of making option-based compensation more transparent and reproducible. By doing so, it will present new empirical evidence that will extend the literature to a new international setting by using data on German executive compensation and to an institutional setting that is in many ways different from previous U.S.-based studies, but more representative of (continental) European countries. At the same time, it extends the knowledge about the economic consequences of accounting standards as it exploits the immediate transition, the differential treatment of certain instruments, and the longer history of performance-vested shares in Germany. Taken together this will generate insights into the effects and consequences of IFRS 2 that can be of interest to shareholders, managers, standard setters, enforcement agencies, and policy makers.
Keywords: Executive Compensation; Accounting
 
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