Paper Title
The Impact of Revenue Recognition on Executive Compensation
Abstract
The paper assesses the impact of the new FASB revenue recognition rules on Executive Compensation. When a firm restates its financial statement based on this new ruling, technology firms in particular may increase non-salary based compensation for company executives. We analyze firm value-relevant information of the amended revenue due to the restatement initiated from the change in revenue recognition rules. When faced with many restrictions on revenue recognition, technology firms were required to defer recognition of any revenue until all multiple elements were delivered to the customer. The new revenue recognition rules have culminated in the refinement which allow technology firms to recognize most of the revenue upfront rather than defer revenue by subscription financial reporting. Upfront revenue recognition is particularly significant in the technology industry where incentive equity options as a form of Executive Non-Salary compensation can be based on the amount of revenue. Using the SEC filing DEF 14A disclosure from 1996 to 2017, we analyze compensation data for all Executive Base Salary, and Non-Salary Compensation: Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation, and Long-term Compensation Awards. Our research adds to the current literature by demonstrating that updates to revenue recognition rules can significantly increase Executive Non-Salary compensation.
Keywords - Executive compensation, equity options, revenue recognition, restatements