IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-16-00636.html

Severance agreements, incentives and CEO dismissal

Author

Listed:
  • Clara Graziano

    (University of Udine, Department of Economics and Statistics)

  • Annalisa Luporini

    (University of Florence, Department of Economics)

Abstract

We analyze how severance pay can alleviate the conflict between firing a manager and simultaneously providing him with the incentive to exert effort before being fired. Contrary to previous literature, in our model severance pay is contingent on firm performance. We show that severance pay contingent on firm performance can solve the conflict by rewarding the manager only in case of investment success.

Suggested Citation

  • Clara Graziano & Annalisa Luporini, 2017. "Severance agreements, incentives and CEO dismissal," Economics Bulletin, AccessEcon, vol. 37(1), pages 440-447.
    • Handle: RePEc:ebl:ecbull:eb-16-00636
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2017/Volume37/EB-17-V37-I1-P40.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brian Bell & John Reenen, 2014. "Bankers and Their Bonuses," Economic Journal, Royal Economic Society, vol. 124(574), pages 1-21, February.
    2. repec:bla:jfinan:v:58:y:2003:i:2:p:519-548 is not listed on IDEAS
    3. Yermack, David, 2006. "Golden handshakes: Separation pay for retired and dismissed CEOs," Journal of Accounting and Economics, Elsevier, vol. 41(3), pages 237-256, September.
    4. Roman Inderst & Holger M. Mueller, 2010. "CEO Replacement Under Private Information," The Review of Financial Studies, Society for Financial Studies, vol. 23(8), pages 2935-2969, August.
    5. Michael Faulkender & Dalida Kadyrzhanova & N. Prabhala & Lemma Senbet, 2010. "Executive Compensation: An Overview of Research on Corporate Practices and Proposed Reforms," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 107-118, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alex Edmans & Xavier Gabaix, 2016. "Executive Compensation: A Modern Primer," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1232-1287, December.
    2. Van Wesep, Edward D. & Wang, Sean, 2014. "The prevention of excess managerial risk taking," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 579-593.
    3. Robert Dur & Heiner Schmittdiel, 2019. "Paid to Quit," De Economist, Springer, vol. 167(4), pages 387-406, December.
    4. Zenan Wu & Xi Weng, 2018. "Managerial turnover and entrenchment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 742-771, October.
    5. Brown, Kareen & Jha, Ranjini & Pacharn, Parunchana, 2015. "Ex ante CEO severance pay and risk-taking in the financial services sector," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 111-126.
    6. Matthias Kiefer & Edward Jones & Andrew Adams, 2016. "Principals, Agents and Incomplete Contracts: Are Surrender of Control and Renegotiation the Solution?," CFI Discussion Papers 1603, Centre for Finance and Investment, Heriot Watt University.
    7. Cronqvist, Henrik & Fahlenbrach, Rüdiger, 2013. "CEO contract design: How do strong principals do it?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 659-674.
    8. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    9. Tore Ellingsen & Eirik Gaard Kristiansen, 2022. "Fair and Square: A Retention Model of Managerial Compensation," Management Science, INFORMS, vol. 68(5), pages 3604-3624, May.
    10. Yaroslav Rosokha & Chen Wei, 2024. "Cooperation in Queueing Systems," Management Science, INFORMS, vol. 70(11), pages 7597-7616, November.
    11. Adachi-Sato, Meg, 2024. "Socially responsible investment: Ex-ante contracting or ex-post bargaining?," International Review of Economics & Finance, Elsevier, vol. 94(C).
    12. Eisfeldt, Andrea L. & Kuhnen, Camelia M., 2013. "CEO turnover in a competitive assignment framework," Journal of Financial Economics, Elsevier, vol. 109(2), pages 351-372.
    13. Kobayashi, Mami & Osano, Hiroshi, 2012. "Nonrecourse financing and securitization," Journal of Financial Intermediation, Elsevier, vol. 21(4), pages 659-693.
    14. Florian S. Peters & Alexander F. Wagner, 2014. "The Executive Turnover Risk Premium," Journal of Finance, American Finance Association, vol. 69(4), pages 1529-1563, August.
    15. Feiran Dong & Yongzhen Xie & Linjun Cao, 2019. "Board Power Hierarchy, Corporate Mission, and Green Performance," Sustainability, MDPI, vol. 11(18), pages 1-27, September.
    16. repec:spo:wpmain:info:hdl:2441/2gg54vdji291pb220pomk85ev8 is not listed on IDEAS
    17. Wancheng Yang & Jinwen Xu & Yihan Zhang & Xiaodan Wei & Shaofeng Wang, 2023. "The incentive role of media companies’ executive compensation system in transformation and upgrading: Evidence from listed media companies in China," PLOS ONE, Public Library of Science, vol. 18(6), pages 1-19, June.
    18. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    19. Sundaram, Rangarajan K. & Yermack, David, 2006. "Pay Me Later: Inside Debt and Its Role in Managerial Compensation," SIFR Research Report Series 43, Institute for Financial Research.
    20. Arja Jolkkonen & Pertti Koistinen & Arja Kurvinen & Liudmila Lipiäinen & Tapio Nummi & Pekka Virtanen, 2018. "Labour Market Attachment Following Major Workforce Downsizings: A Comparison of Displaced and Retained Workers," Work, Employment & Society, British Sociological Association, vol. 32(6), pages 992-1010, December.
    21. Andrew Sayer, 2023. "Rentiership, improperty and moral economy," Environment and Planning A, , vol. 55(6), pages 1471-1484, September.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-16-00636. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.