October 18, 2021

Don’t Cut CEO Pay For Bad Performance or the CEO Might Cheat

Slashing a CEO’s compensation after a company produces disappointing financial results may help improve earnings for a time, but it can also encourage earnings manipulation, according to a new study.

The study, which was presented at last month’s annual meeting of the American Accounting Association, acknowledged that some prior academic research has found company performance to improve when boards of directors cut CEO remuneration, but found the improvement could stem from financial and managerial manipulations as opposed to solid gains. [Accounting Today]

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