Managerial Labor Market During Institutional Transition: A Study of CEO Compensation and Voluntary Turnover

19 Pages Posted: 11 May 2017

See all articles by Lerong He

Lerong He

State University of New York (SUNY) College at Brockport

Tara Shankar Shaw

Indian Institute of Technology Bombay

Junxiong Fang

Fudan University - School of Management

Date Written: May 2017

Abstract

Manuscript Type. Empirical.

Research Question/Issue. This paper investigates the influence of CEO compensation on voluntary turnover and the moderating role of the managerial labor market. It explores how institutional contingencies related to labor market transparency, mobility, and competitiveness shape supply and demand conditions of the managerial labor market, and consequently affect the relationship between CEO underpayment and turnover.

Research Findings/Insights. Using a sample of Chinese listed firms between 2002 and 2011, we document that underpaid CEOs are associated with a larger likelihood of voluntary turnover in China. Importantly, we find that CEO underpayment will increase the likelihood of voluntary turnover to a greater extent when executive compensation disclosure is mandatory, when regional labor mobility is higher, and when industry growth rate is larger. Overall, our study demonstrates that underpayment below the market rate motivates CEOs to exit their organizations and such a reaction is more likely to materialize when managerial labor market conditions are favorable enough to create a strong pull force.

Theoretical/Academic Implications. This study adopts an interdisciplinary perspective built on institutional theory, organizational psychology, and labor economics to examine the role of the managerial labor market during institutional transition. It integrates the social psychological explanation of turnover with the perspective of labor economics by linking both pull side and push side drivers of organizational participation with demand and supply conditions of the managerial labor market.

Practitioner/Policy Implications. This study suggests that the design of executive compensation should consider the ongoing labor market rate for retention and motivation reasons, especially when managerial talent is under tight supply and strong demand.

Keywords: Corporate governance, CEO turnover, executive compensation, managerial labor market, China

Suggested Citation

He, Lerong and Shaw, Tara Shankar and Fang, Junxiong, Managerial Labor Market During Institutional Transition: A Study of CEO Compensation and Voluntary Turnover (May 2017). Corporate Governance: An International Review, Vol. 25, Issue 3, pp. 167-185, 2017, Available at SSRN: https://ssrn.com/abstract=2965808 or http://dx.doi.org/10.1111/corg.12187

Lerong He (Contact Author)

State University of New York (SUNY) College at Brockport ( email )

Brockport, NY 14420
United States

Tara Shankar Shaw

Indian Institute of Technology Bombay ( email )

Mumbai, 400076
India

Junxiong Fang

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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