Earnings per share targets and CEO incentives

Christopher Armstrong, Jacky Chau, Christopher D. Ittner, Jason J. Xiao

Review of Accounting Studies · 2025 · Volume 30 · Issue 1

Abstract

We examine differences in CEOs’ achievement of earnings per share (EPS) targets related to (1) analysts’ forecasts and (2) internal cash bonus payouts. Our focus on firms withdifferent benchmarksfor thesame performance metricenables us to assess the relative importance of the incentives that each EPS target provides based on its revealed achievement. Most CEOs meet analysts’ final consensus EPS forecasts but are unlikely to meet bonus EPS targets that exceed forecasted EPS. Nearly all CEOs receive some EPS-based cash bonus, even when missing the forecast. Moreover, CEOs with bonus targets that are easier to achieve than the consensus forecast tend to receivemoreannual pay, suggesting that boards often set more achievable EPS targets to provide extra compensation to CEOs while maintaining the appearance of pay-for-performance. Our results highlight the importance of considering both types of EPS targets simultaneously when assessing their respective incentive properties.

Keywords

Earnings per share (EPS), Earnings targets, CEO incentives, Bonus contracts, Analysts’ forecasts, Meet or beat

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