Entrenchment and Severance Pay in Optimal Governance Structures
Posted: 21 Aug 2002
Abstract
This paper explores how motivating an incumbent CEO to undertake actions that improve the effectiveness of his management interacts with the firm's policy on CEO replacement. Such policy depends on the presence and the size of severance pay in the CEO's compensation package and on the CEO's influence on the board of directors regarding his own replacement (i.e., entrenchment).
We explain when and why the combination of some degree of entrenchment and a sizeable severance package is desirable. The analysis offers predictions about the correlation between entrenchment, severance pay, and incentive compensation.
Suggested Citation: Suggested Citation
Andres Almazan (Contact Author)
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-471-4368 (Phone)
512-471-5073 (Fax)
HOME PAGE: http://www.mccombs.utexas.edu/dept/finance/faculty/profiles/index.asp?addTarget=4
European Corporate Governance Institute (ECGI)
c/o the Royal Academies of Belgium
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1000 Brussels
Belgium
HOME PAGE: http://www.ecgi.org