CFO Fiduciary Responsibilities and Incentive Compensation
نویسندگان
چکیده
We examine how firms evaluate and compensate their chief financial officers (CFOs). CFOs participate in decision making much like other executives, but unlike most other executives they have fiduciary responsibilities for reporting firms’ financial results and safeguarding the integrity of financial reporting. Responsibility for financial reporting raises the question of whether it is appropriate to reward CFOs contingent on financial performance that is effectively self-reported. In this paper, we provide a framework that characterizes CFO incentive compensation practices as a tradeoff between CFOs’ decision-making responsibilities and their fiduciary duties over financial reporting. This framework yields a number of implications which we examine empirically using a proprietary survey of CFO compensation practices of public and private firms. For instance, we find that from 2003 to 2007 public entities (relative to private entities) reduced the percentage of CFO bonuses contingent on financial performance. We interpret this result as evidence that firms mitigate earnings management or other misreporting practices in part by deemphasizing CFO incentive compensation.
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