CEO pay cuts and forced turnover: Their causes and consequences
We study large discrete decreases in CEO pay and compare them to CEO forced turnover. The determinants are similar, as are the performance improvements after the action. After the pay cut, the CEO pay-for-performance sensitivity is abnormally high, such that the CEO can restore his pay level by reve...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2013
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/107244 http://hdl.handle.net/10220/18162 |
| _version_ | 1811687263658049536 |
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| author | Gao, Huasheng Harford, Jarrad Li, Kai |
| author2 | Nanyang Business School |
| author_facet | Nanyang Business School Gao, Huasheng Harford, Jarrad Li, Kai |
| author_sort | Gao, Huasheng |
| collection | NTU |
| description | We study large discrete decreases in CEO pay and compare them to CEO forced turnover. The determinants are similar, as are the performance improvements after the action. After the pay cut, the CEO pay-for-performance sensitivity is abnormally high, such that the CEO can restore his pay level by reversing the poor performance. After either a pay cut or forced turnover, CEOs reduce investment and leverage, and improve performance, on average. Together, our results show that the possibility of these large compensation cuts provides ex ante incentives for CEOs to exert effort to avoid poor performance and that CEOs take actions to improve poor performance once pay is cut. The similarity of the causes and outcomes of large pay cuts compared to forced turnover suggests that large pay cuts are used as a substitute for forced turnover, helping to explain why forced turnover is rare. |
| first_indexed | 2024-10-01T05:13:32Z |
| format | Journal Article |
| id | ntu-10356/107244 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T05:13:32Z |
| publishDate | 2013 |
| record_format | dspace |
| spelling | ntu-10356/1072442023-05-19T06:44:41Z CEO pay cuts and forced turnover: Their causes and consequences Gao, Huasheng Harford, Jarrad Li, Kai Nanyang Business School DRNTU::Business::Finance::Corporate finance We study large discrete decreases in CEO pay and compare them to CEO forced turnover. The determinants are similar, as are the performance improvements after the action. After the pay cut, the CEO pay-for-performance sensitivity is abnormally high, such that the CEO can restore his pay level by reversing the poor performance. After either a pay cut or forced turnover, CEOs reduce investment and leverage, and improve performance, on average. Together, our results show that the possibility of these large compensation cuts provides ex ante incentives for CEOs to exert effort to avoid poor performance and that CEOs take actions to improve poor performance once pay is cut. The similarity of the causes and outcomes of large pay cuts compared to forced turnover suggests that large pay cuts are used as a substitute for forced turnover, helping to explain why forced turnover is rare. 2013-12-06T08:41:08Z 2019-12-06T22:27:17Z 2013-12-06T08:41:08Z 2019-12-06T22:27:17Z 2012 2012 Journal Article Gao, H., Harford, J., & Li, K. (2012). CEO pay cuts and forced turnover: Their causes and consequences. Journal of corporate finance, 18(2), 291-310. 0929-1199 https://hdl.handle.net/10356/107244 http://hdl.handle.net/10220/18162 10.1016/j.jcorpfin.2012.01.001 en Journal of corporate finance |
| spellingShingle | DRNTU::Business::Finance::Corporate finance Gao, Huasheng Harford, Jarrad Li, Kai CEO pay cuts and forced turnover: Their causes and consequences |
| title | CEO pay cuts and forced turnover: Their causes and consequences |
| title_full | CEO pay cuts and forced turnover: Their causes and consequences |
| title_fullStr | CEO pay cuts and forced turnover: Their causes and consequences |
| title_full_unstemmed | CEO pay cuts and forced turnover: Their causes and consequences |
| title_short | CEO pay cuts and forced turnover: Their causes and consequences |
| title_sort | ceo pay cuts and forced turnover their causes and consequences |
| topic | DRNTU::Business::Finance::Corporate finance |
| url | https://hdl.handle.net/10356/107244 http://hdl.handle.net/10220/18162 |
| work_keys_str_mv | AT gaohuasheng ceopaycutsandforcedturnovertheircausesandconsequences AT harfordjarrad ceopaycutsandforcedturnovertheircausesandconsequences AT likai ceopaycutsandforcedturnovertheircausesandconsequences |