Journal of Management & Governance
Human resource planning, Chief executive officers, Boards of directors, Experimental/theoretical, Employee benefits & compensation, Business And Economics--Banking And Finance
We propose that outside CEO candidates will have greater bargaining power than insiders. As a result, outside CEO successors will likely receive greater total compensation than inside CEO successors. Outside successors, meantime, pose more risk to the hiring firm than inside successors due to higher information asymmetry. As a result, outside successor compensation packages are tilted towards more performance-related pay-at-risk, while inside successor packages have a higher percentage in salary. In addition, outside successors may want to utilize the structure of their compensation at their previous firm in their new contracts. Using a sample of 99 firms with outside successors who were not CEO in their prior firms, matched by industry and size to firms that hired inside candidates, we find evidence supporting these hypotheses.
Elsaid, Eahab; Davidson, Wallace; and Wang, Xiaoxin. (2011). CEO successor compensation: outside versus inside successions. Journal of Management & Governance, 15 (2), 187-205.