Restrictions on CEO Mobility, Performance-Turnover Sensitivity, and Compensation: Evidence from Non-compete Agreements

64 Pages Posted: 13 May 2018  

Omesh Kini

Georgia State University

Ryan Williams

University of Arizona - Department of Finance

Sirui Yin

Miami University

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2018

Abstract

We examine the determinants of CEO non-compete agreements as well as the impact of these agreements on how the CEO is monitored and compensated by the board of directors. Using hand-collected data on CEO non-compete agreements, we find that the CEO is less likely to have a non-compete agreement if she faces greater employment risk and more likely when the firm expects to suffer greater economic harm if the CEO joins a competitor in some capacity. Consistent with the idea that non-compete agreements reduce the economic damage a departing CEO can cause a firm by restricting her ability to collaborate with a competitor, we find that the CEO performance-turnover sensitivity is significantly stronger when the CEO has a non-compete agreement in place. Finally, we find that CEO total compensation and incentive pay are higher if CEOs have enforceable non-compete contracts, and we observe these findings primarily in situations where the non-compete agreement is more likely to have a significant impact on the CEO’s outside options. Our empirical identification strategy utilizes staggered state-level changes in non-compete enforceability. We illustrate that restrictions on CEO mobility have important implications for how the board monitors and compensates the CEO.

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

Kini, Omesh and Williams, Ryan and Yin, Sirui, Restrictions on CEO Mobility, Performance-Turnover Sensitivity, and Compensation: Evidence from Non-compete Agreements (April 30, 2018). Available at SSRN: https://ssrn.com/abstract=3170804 or http://dx.doi.org/10.2139/ssrn.3170804

Omesh Kini

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

Ryan Williams (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Sirui Yin

Miami University ( email )

Oxford, OH 45056
United States

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