The Quarterly Review of Economics and Finance
CEO turnover, CEO succession, Compensation, Corporate governance
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 predecessorsâ€™ 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.
Elsaid, Eahab and Davidson III, Wallace N.. (2009). What happens to CEO compensation following turnover and succession?. The Quarterly Review of Economics and Finance, 49 (2), 424-447.