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Incentive pay sensitivity to firm performance prior to anticipated CEO turnover

This study explores whether the sensitivity of CEO compensation to changes in firm performance depends on the CEO's likelihood of leaving the position. In a sample of 3180 US publicly-traded firms, we find that the sensitivity of bonus pay to firm performance is enhanced for a CEO who has reach...

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Detalles Bibliográficos
Autores principales: Chulkov, Dmitriy V., Barron, John M.
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Elsevier 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10684370/
https://www.ncbi.nlm.nih.gov/pubmed/38034637
http://dx.doi.org/10.1016/j.heliyon.2023.e22163
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author Chulkov, Dmitriy V.
Barron, John M.
author_facet Chulkov, Dmitriy V.
Barron, John M.
author_sort Chulkov, Dmitriy V.
collection PubMed
description This study explores whether the sensitivity of CEO compensation to changes in firm performance depends on the CEO's likelihood of leaving the position. In a sample of 3180 US publicly-traded firms, we find that the sensitivity of bonus pay to firm performance is enhanced for a CEO who has reached retirement age. Further, we find that the sensitivity of bonus pay to firm performance is greater when there is evidence of a planned CEO turnover within a two-year window. We show that these findings are consistent with a principal-agent model in which firms who anticipate a greater likelihood of CEO departure find it advantageous to enhance the link between bonus pay and concurrent performance measures to compensate for the lowering of incentives that rely on the manager being employed long-term. The results provide a rationale for including bonus pay in the overall executive compensation package.
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spelling pubmed-106843702023-11-30 Incentive pay sensitivity to firm performance prior to anticipated CEO turnover Chulkov, Dmitriy V. Barron, John M. Heliyon Research Article This study explores whether the sensitivity of CEO compensation to changes in firm performance depends on the CEO's likelihood of leaving the position. In a sample of 3180 US publicly-traded firms, we find that the sensitivity of bonus pay to firm performance is enhanced for a CEO who has reached retirement age. Further, we find that the sensitivity of bonus pay to firm performance is greater when there is evidence of a planned CEO turnover within a two-year window. We show that these findings are consistent with a principal-agent model in which firms who anticipate a greater likelihood of CEO departure find it advantageous to enhance the link between bonus pay and concurrent performance measures to compensate for the lowering of incentives that rely on the manager being employed long-term. The results provide a rationale for including bonus pay in the overall executive compensation package. Elsevier 2023-11-10 /pmc/articles/PMC10684370/ /pubmed/38034637 http://dx.doi.org/10.1016/j.heliyon.2023.e22163 Text en © 2023 The Authors https://creativecommons.org/licenses/by-nc-nd/4.0/This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
spellingShingle Research Article
Chulkov, Dmitriy V.
Barron, John M.
Incentive pay sensitivity to firm performance prior to anticipated CEO turnover
title Incentive pay sensitivity to firm performance prior to anticipated CEO turnover
title_full Incentive pay sensitivity to firm performance prior to anticipated CEO turnover
title_fullStr Incentive pay sensitivity to firm performance prior to anticipated CEO turnover
title_full_unstemmed Incentive pay sensitivity to firm performance prior to anticipated CEO turnover
title_short Incentive pay sensitivity to firm performance prior to anticipated CEO turnover
title_sort incentive pay sensitivity to firm performance prior to anticipated ceo turnover
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10684370/
https://www.ncbi.nlm.nih.gov/pubmed/38034637
http://dx.doi.org/10.1016/j.heliyon.2023.e22163
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