Abstract

http://ssrn.com/abstract=1785798
 
 

References (29)



 
 

Citations (7)



 


 



Contractual Versus Actual Severance Pay Following CEO Turnover


Eitan Goldman


Indiana University - Kelley School of Business - Department of Finance

Peggy Huang


Tulane University - Finance & Economics

March 14, 2011


Abstract:     
Using hand-collected data, we document the details of the ex-ante severance contract and the ex-post separation pay given to S&P500 CEOs upon departing from their companies. We analyze what determines whether or not a departing CEO receives separation pay in excess of her severance contract. We find that discretionary separation pay is, on average, $8 million, which amounts to close to 242% of a CEO’s annual compensation. We investigate several potential explanations for this phenomenon and find evidence that in voluntary CEO departures, discretionary separation pay represents a governance problem. In contrast, we find evidence that in forced departures, discretionary separation pay is used to facilitate an amicable and smooth transition from the failed ex-CEO to a new CEO. These results help to shed light on the dual role played by severance compensation and on the bargaining game played between the board and the departing executive.

Number of Pages in PDF File: 39

Keywords: Executive compensation, Severance, Separation pay, Managerial incentives, CEO turnover, Bargaining

JEL Classification: G34, J33, J41

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Date posted: March 20, 2011  

Suggested Citation

Goldman, Eitan and Huang, Peggy, Contractual Versus Actual Severance Pay Following CEO Turnover (March 14, 2011). Available at SSRN: http://ssrn.com/abstract=1785798 or http://dx.doi.org/10.2139/ssrn.1785798

Contact Information

Eitan Goldman (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)

Peggy Huang
Tulane University - Finance & Economics ( email )
A.B. Freeman School of Business
7 McAlister Drive
New Orleans, LA 70118
United States
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