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When the market can observe the profitability of all projects with equal precision, then with stock compensation (1) the weight on any given project in managerial compensation is independent of the marginal productivity of effort in the project; (2) the projects that are the noisiest indicators of managerial effort receive the most weight in compensation; and (3) investors have the greatest incentive to collect information about projects that are the noisiest indicators of managerial effort. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
Jonathan M. Paul (1992) studied this question.