The Propensity to Split and CEO Compensation

We analyze the relation between the delta and vega of a CEO's compensation and the propensity of the firm to engage in a split. Controlling for other well-known factors, we find that CEOs with compensation that has higher levels of delta are more likely to split their shares. Furthermore, the choice of split factor is inversely related to delta and directly related to vega, a result driven by the volatility effect of stock splits. Our results are economically significant: for the average firm in our sample, a stock split results in a CEO wealth gain of $4.9 million.