Taxation and executive compensation: Evidence from stock options

Understanding the effects of taxes on executive compensation provides insight into the process determining this compensation and is a key input to top income tax rate policy. A 2010 tax reform in Canada, which greatly increased the effective tax rate on stock option compensation for a subset of firm...

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Bibliographic Details
Published in:Journal of financial economics 2018-02, Vol.127 (2), p.285-302
Main Author: Bird, Andrew
Format: Article
Language:English
Subjects:
Compensation
Effective income tax rates
Executive compensation
Grants
Impact analysis
Income taxes
Stock options
Studies
Tax increases
Tax rates
Tax reform
Taxation
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Summary:Understanding the effects of taxes on executive compensation provides insight into the process determining this compensation and is a key input to top income tax rate policy. A 2010 tax reform in Canada, which greatly increased the effective tax rate on stock option compensation for a subset of firms, provides a natural experiment with which to address this issue. Difference-in-differences estimates suggest that this tax increase resulted in an immediate reduction in both stock option grants and the fraction of total compensation made up of stock options with limited, if any, substitution towards other components of compensation.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2017.11.006