Contractual Versus Actual Severance Pay Following CEO Departure
نویسندگان
چکیده
Using hand-collected data, we document the details of the ex-ante severance contract and the ex-post separation pay given to S&P500 CEOs upon departing from their company. We analyze for the determinants of whether or not a departing CEO receives separation pay in excess of her severance contract. This excess separation pay is on average, $8 million, which amounts to close to 242% of a CEO’s annual compensation. We investigate several potential explanations for this phenomenon and find evidence that in voluntary CEO departures, excess separation pay represents a governance problem. In contrast, we find evidence that in forced departures, excess separation pay represents a need to facilitate a quick and smooth transition from the failed ex-CEO to a new CEO. These results help to shed light on the dual role played by severance compensation and on bargaining games played between boards and departing executives. JEL classification: G34; J33; J41
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