Golden Hellos: Signing Bonuses for New Top Executives
Virginia Tech - Pamplin College of Business
Indiana University - Kelley School of Business - Department of Finance
October 24, 2014
A one-time, upfront award to a new executive, the signing bonus is labeled by the media as a “golden hello.” Some view the signing bonus as pay decoupled from performance and thus another form of excessive pay; others consider it an incentive device that attracts, motivates, and retains an executive whose superior skills are critical for a firm’s success. To shed light on this debate, we examine the signing bonus contract awarded when an executive was hired for or promoted to a Named Executive Officer (NEO) position at an S&P 1500 company during 1992–2011. We find an increasing use of the signing bonus, especially among outside hires. In addition to compensating for an executive’s wealth loss due to a job change, the signing bonus is often used by firms with higher innate risks and greater information asymmetry to mitigate the executive’s concern about termination risk. When such concerns are severe, the signing bonus award is positively associated with subsequent firm performance and executive tenure.
Number of Pages in PDF File: 54
Keywords: Signing bonuses; Incentive device; Executive compensation
JEL Classification: J33, M52
Date posted: September 2, 2013 ; Last revised: October 25, 2014
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