Restructuring Charges and CEO Cash Compensation: A Reexamination

Posted: 3 Nov 2002

See all articles by Davit Adut

Davit Adut

affiliation not provided to SSRN

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management

Thomas J. Lopez

University of Alabama - Culverhouse School of Accountancy

Abstract

Prior research generally concludes that compensation committees completely shield executive compensation from the effect of restructuring charges on earnings. In contrast, we find that after controlling for the growth in annual inflation-adjusted CEO cash compensation, compensation committees only partially shield CEO compensation from the adverse effect of restructuring charges on earnings, on average. In further analyses, we identify factors associated with cross-sectional differences in the extent of shielding. Specifically, we find that compensation committees appear to: (1) completely shield initial and subsequent restructuring charges for CEOs with long tenure, provided that the firm had not recorded a charge in the two immediately prior years, (2) provide no shielding of subsequent restructuring charges taken by short-tenured CEOs if the firm reported a prior restructuring charge within two years of the current charge, (3) and partially shield the other categories of restructuring charges. Overall, this study provides evidence that compensation committees evaluate the context of each restructuring in determining the extent to which they will intervene to shield executive compensation from the effect of these charges.

Keywords: executive compensation, restructuring charges, compensation committee

JEL Classification: M41, J33, G34

Suggested Citation

Adut, Davit and Cready, William M. and Lopez, Thomas J., Restructuring Charges and CEO Cash Compensation: A Reexamination. Accounting Review, January 2003. Available at SSRN: https://ssrn.com/abstract=329902

Davit Adut

affiliation not provided to SSRN

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Thomas J. Lopez (Contact Author)

University of Alabama - Culverhouse School of Accountancy ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
205-348-2907 (Phone)

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