CEO Non-Compete Agreements, Job Risk, and Compensation
The Review of Financial Studies
87 Pages Posted: 13 May 2018 Last revised: 26 May 2020
Date Written: May 20, 2020
Using hand-collected data on chief executive officer (CEO) non-compete agreements (NCAs), we find that NCAs are less likely when CEOs expect to incur greater personal costs from reduced job mobility and more likely when firms expect to suffer greater economic harm if departing CEOs work for competitors. Additionally, turnover–performance sensitivity is stronger when CEOs have NCAs. Finally, total compensation and incentive pay are higher if CEOs have more enforceable NCAs. Our identification strategy exploits staggered state-level changes in NCA enforceability. Overall, our findings suggest that restrictions on job mobility have important implications for how CEOs are monitored and compensated.
Keywords: CEO Non-Compete Contracts; CEO Mobility, CEO Performance-Turnover Sensitivity; CEO Pay; CEO Compensation Structure
JEL Classification: G30, G32, G34, K22, L22, L25
Suggested Citation: Suggested Citation