Does chief executive compensation predict financial performance or inaccurate financial reporting in listed companies: A systematic review

Background: Fiancial incentives for chief executive officers (CEOs) are thought to motivate them to lead their company toward achieving important business objectives. Based on the Rousseau et al. (2019) protocol, this systematic review assesses the predictive effects of CEO incentives on certain business outomces. 

Objectives: This review addresses whether CEO financial incentives predict: (1) firm financial performance and (2) financial restatement due to misreporting.

Author's Conclusions: This review affirms a small effect of CEO bonuses, but no effect of stock options, on the accounting performance metric ROA. In contrast, neither bonuese or stock options predict a firm's market-related metrics. CEO incentives also are unrelated to financial restatement. Despite widespread use of CEO financial incentives, lack of evidence supporting their use, beyond the bonus-ROA effect we identify, suggests caution regarding current CEO financial incentive practice and greater consideration of alternative arrangements to enhance firm performance.