Document Type

Article

Publication Date

2009

Publication Title

The Quarterly Review of Economics and Finance

Volume

49

Issue

2

First Page

424

Last Page

447

Keywords

CEO turnover, CEO succession, Compensation, Corporate governance

Abstract

When boards hire CEOs, the board and successor CEO have an opportunity to redesign the predecessor's compensation contract. The CEO's relative bargaining power will influence the outcome of compensation negotiations. Analyzing 508 successions, we find that total compensation of successor CEOs increases by 69% over their predecessor, but the structure of successor compensation is heavily influenced by the predecessors’ contracts. When the board's bargaining power is large, successors have a greater proportion of pay-at-risk and smaller proportion of salary. When the CEO's bargaining power is large, there is a smaller proportion of pay-at-risk and relatively greater proportion of salary.

Comments

NOTICE: this is the author’s version of a work that was accepted for publication in the Quarterly Review of Economics and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in the Quarterly Review of Economics and Finance 49 (2), 2009 and is available here.

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