Internal Managerial Promotions: Insider Incentives and CEO Succession
53 Pages Posted: 10 Mar 2008 Last revised: 4 Sep 2012
Date Written: September 3, 2012
We identify and compare firms that promote a single executive (successor-incentive) and companies that conduct tournaments (tournament-incentive) among inside managers to succeed the CEO. Successor-incentive firms give more pay-for-performance compensation to the designated successor, are more likely in firms or industries where firm-specific human capital is more important to the CEO position and where the supply of potential outside CEO replacements is limited. In addition, these firms are associated with lower CEO turnover sensitivity to firm performance. Restricting firms that are suited for a successor-incentive promotion to a tournament-incentive promotion is associated with lower firm valuation.
Keywords: Succession, CEO turnover, organization structure, tournament, compensation, firm performance
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation