CFO Compensation and Public Company Audit Fees: A Study of Relationships and Influence on Audit Pricing

From the Introduction: In corporate America, most executives have multiple forms of compensation ranging from a base salary, which is fixed, to annual and multi-year bonuses, which are normally tied to some performance based metrics; to longer-term incentives such as stock options, stock grants, restricted stock units (RSUs) and other forms of equity-based compensation. Aside from a base salary within normal ranges, all other forms of compensation are normally meant to incentify an executives’ behavior to work in the best interest of the company and its shareholders. At least, that is the theory on incentive-based compensation. It is quite common for a CEO and CFO, both of which have a direct role and impact on a firm’s financial statements and financial reports, to have multiple forms of compensation just like the forms described previously. The Economic Research Institute compiles compensation data on Russell 3000 firms and classifies executive compensation into three main classes: Base Salary, Annual Cash Incentives (bonuses), and Equity-based Compensation (including options and stock grants). I use similar classifications and subgroups of these classifications in my research and analysis