CEO Compensation and Risk of Turnover: Evidence from CEO Divorce

51 Pages Posted: 17 Jul 2019

See all articles by Mahdi Mohseni

Mahdi Mohseni

Texas A&M University - Department of Finance

Date Written: November 1, 2015

Abstract

Contrary to the entrenchment view of executive compensation, I find that CEOs with more control over the firm, proxied by higher equity ownership, have smaller compensation packages and are less likely to have severance contracts. Despite lower pay, these CEOs have longer tenure and their boards’ replacement decisions are less sensitive to their performance, which is consistent with the view that there is a trade-off between pay and dismissal risk. To mitigate endogeneity concerns, I use divorce as an exogenous negative shock to CEO equity ownership, and find that following a divorce, turnover risk goes up and pay increases significantly.

Keywords: CEO Ownership, Compensation, Turnover Risk, Severance Contracts, Corporate Governance

JEL Classification: G30, G32, G34, J31, J33

Suggested Citation

Mohseni, Mahdi, CEO Compensation and Risk of Turnover: Evidence from CEO Divorce (November 1, 2015). Available at SSRN: https://ssrn.com/abstract=3420995 or http://dx.doi.org/10.2139/ssrn.3420995

Mahdi Mohseni (Contact Author)

Texas A&M University - Department of Finance ( email )

360N Wehner Building, 4218 TAMU
College Station, TX Texas 77843
United States

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