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CEO Cash and Stock‐Based Compensation Changes, Layoff Decisions, and Shareholder Value

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  • Jeffrey T. Brookman
  • Saeyoung Chang
  • Craig G. Rennie

Abstract

The chief executive officers (CEOs) of firms announcing layoffs receive 22.8% more total pay in the subsequent year than other CEOs. The pay increases result almost entirely from increases in stock‐based compensation and are found to persist. In addition, layoff announcements are accompanied by shareholder value increases averaging $40 million to $95 million. One‐time labor cost savings from layoffs average $65 million. We conclude that CEOs receive pay increases following layoffs as rewards for past decisions and to motivate value‐enhancing decisions in the future.

Suggested Citation

  • Jeffrey T. Brookman & Saeyoung Chang & Craig G. Rennie, 2007. "CEO Cash and Stock‐Based Compensation Changes, Layoff Decisions, and Shareholder Value," The Financial Review, Eastern Finance Association, vol. 42(1), pages 99-119, February.
    • Handle: RePEc:bla:finrev:v:42:y:2007:i:1:p:99-119
    DOI: 10.1111/j.1540-6288.2007.00163.x
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    Cited by:

    1. João Paulo Vieito & António Cerqueira & Elísio Brandão & Walayet A. Khan, 2009. "Executive Compensation: the Finance Perspective," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(1), pages 3-32.
    2. Anne Anderson & E. James Cowan & Karen C. Denning, 2015. "Human Capital Reorganizations and Market Performance: U.S. Firms," Business and Economic Research, Macrothink Institute, vol. 5(2), pages 97-121, December.
    3. Santiago Velásquez & Juho Kanniainen & Saku Mäkinen & Jaakko Valli, 2018. "Layoff announcements and intra-day market reactions," Review of Managerial Science, Springer, vol. 12(1), pages 203-228, January.
    4. Mariano González-Sánchez & Eva M. Ibáñez Jiménez & Ana I. Segovia San Juan, 2021. "Board of Directors’ Remuneration, Employee Costs, and Layoffs: Evidence from Spain," Sustainability, MDPI, vol. 13(14), pages 1-10, July.

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