Relative Performance Evaluation in Executive Compensation Contracts
Abstract
Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use of these awards has grown over time with 37% of the firms in our sample granting an RPE award in 2012. When RPE awards are used they are typically granted to the five named executive officers and they represent about 32% of total recipient compensation. Stock is most frequently the instrument conveyed, followed by cash, and options are almost never granted.