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The executive turnover risk premium

Author

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  • Florian S. PETERS

    (University of Zurich and University of California at Berkeley)

  • Alexander F. WAGNER

    (University of Zurich)

Abstract

CEO compensation has increased substantially over the past 15 years, but so has forced turnover. Motivated by this observation, we investigate whether part of the development of CEO pay can be explained by a premium which compensates CEOs for increased job risk. We ¯nd that for the CEOs of the largest US corporations, a one percentage point increase in turnover risk is, on average, associated with about 4% more in terms of total compensation. This relation is much stronger in the cross section than it is over time, and it does not appear to be driven by endogeneity. Our ¯ndings are consistent with a model of e±cient contracting, but are harder to reconcile with a model of entrenched CEOs.

Suggested Citation

  • Florian S. PETERS & Alexander F. WAGNER, 2008. "The executive turnover risk premium," Swiss Finance Institute Research Paper Series 08-11, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp0811
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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