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Do Japanese Firms Adopt the Relative Performance Evaluation for Managerial Compensation Contracts?

An Explicit Approach

##article.authors##

  • Sho Hayakawa Faculty of Commerce, University of Marketing and Distribution Sciences
  • Kento Inoue Faculty of Business Administration, Kindai University
  • Jumpei Hamamura Faculty of Business Administration, Momoyama Gakuin University https://orcid.org/0000-0001-6796-8903

DOI:

https://doi.org/10.51094/jxiv.135

Keywords:

Relative performance evaluation, peer group, contract theory, executive compensation, financial statement

Abstract

In this study, we explore whether the relative performance evaluation (RPE) is adopted in managerial compensation contracts in Japanese firms. While previous RPE studies in Japan empirically examine the RPE in compensation contracts based on an implicit approach, this study explores the performance evaluation system using an explicit approach to clarify the actual adoption of the RPE in Japanese firms. From our survey, we obtain the following results. First, 48 firms explicitly disclose that the executives are compensated based on the RPE. Additionally, using the RPE, 6 firms determine cash compensation, and 44 firms determine stock compensation. Second, 7 firms disclose detailed information about peer groups to compare the performance of executives. Finally, while most firms do not adopt the RPE to evaluate the performance of executives, many firms decide on compensation based on information from other firms’ compensation contracts.

Conflicts of Interest Disclosure

All authors have no COI.

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Submitted: 2022-08-04 07:21:12 UTC

Published: 2022-08-08 05:24:22 UTC — Updated on 2023-02-28 07:33:08 UTC

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Section
Economics, Business & Management

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Copyright (c) 2022 Sho Hayakawa
Kento Inoue
Jumpei Hamamura

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