Golden Handshakes: Separation Pay for Retired and Dismissed CEOS

34 Pages Posted: 23 Sep 2004

See all articles by David Yermack

David Yermack

New York University (NYU) - Stern School of Business

Date Written: November 2005

Abstract

This paper studies separation payments made when CEOs leave their firms. In a sample of 179 exiting Fortune 500 CEOs, more than half receive severance pay and the mean separation package is worth $5.4 million. The large majority of severance pay is awarded on a discretionary basis by the board of directors and not according to the terms of an employment agreement. For the subset of exiting CEOs who are dismissed, separation pay generally conforms to theories related to bonding and damage control. Shareholders react negatively when separation agreements are disclosed, but only in cases of voluntary CEO turnover.

Keywords: CEO turnover, severance pay

JEL Classification: G34

Suggested Citation

Yermack, David, Golden Handshakes: Separation Pay for Retired and Dismissed CEOS (November 2005). Available at SSRN: https://ssrn.com/abstract=594423 or http://dx.doi.org/10.2139/ssrn.594423

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