Stealth compensation: Do CEOs increase their pay by influencing dividend policy? ¬リニ

Article history: Received 13 August 2012 Received in revised form 31 December 2013 Accepted 16 January 2014 Available online 23 January 2014 Companies can increase executive compensation by allowing dividends to be paid on unvested restricted stocks grants, also known as stealth compensation. Examining all S&P 500 firms over the period 2003–2007, we find that more than half of the dividend paying firms allow this practice. We look atwhether this form of compensation reduces agency costs or decreases value for shareholders. We find that CEOs' stealth compensation amounts to an average of $180,000 in additional income, which increases the CEOs' cash compensation and total compensation by 9% and 2% respectively. Firms engaging in stealth compensation have higher dividend payout ratios than those not allowing stealth compensation. For all firms using stealth compensation, there is a reduction in average ROA and Tobin's Q over the long run. However, stealth compensation companies with potential agency issues see a meaningful improvement in their long run performance. For weakly governed companies, stealth compensation may act as a bonding mechanism which may serve to reduce agency costs and therefore increase shareholder value. © 2014 Elsevier B.V. All rights reserved. JEL classification: M41 M52 J33