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Managerial incentives in the presence of golden handshakes

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  • Jiang, Yi

Abstract

This paper examines the effect of “golden handshakes” on managerial incentive compensation and risk-taking. Golden handshake, one on hand, increases CEO's pay-for-performance sensitivity by providing a high-powered incentive scheme. On the other hand, it also increases the sensitivity of CEO wealth to stock volatility, and induces CEOs to implement risky investment policy. I show the optimal incentive level increases in the presence of golden handshake. The results help to shed light on the important role of severance contract on the optimal executive compensation.

Suggested Citation

  • Jiang, Yi, 2017. "Managerial incentives in the presence of golden handshakes," Finance Research Letters, Elsevier, vol. 20(C), pages 177-183.
    • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:177-183
    DOI: 10.1016/j.frl.2016.09.023
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    References listed on IDEAS

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    More about this item

    Keywords

    Severance pay; Pay-for-performance; Vega; Optimal executive compensation;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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