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Article
The relationship between incentive compensation and forced CEO turnover
Journal of Economics and Business (2009)
  • Atreya Chakraborty, University of Massachusetts Boston
  • Shahbaz A Sheikh, The University of Western Ontario
  • Narayanan Subramanian
Abstract

We study the relationship between incentive compensation and performance related CEO turnover. Our theoretical model predicts that the slope of the compensation contract and forced turnover may be complements. Our results support this prediction. We find that incentives and turnover are positively related. This relationship however, varies with the equity ownership of CEOs and does not hold for CEOs who own more than 5% equity. Moreover, this relationship is stronger if the firm under performs its industry. Our results suggest that high-powered incentives may increase the signaling power of performance measures and lead to higher likelihood of turnover.

Keywords
  • Incentives,
  • Executive compensation,
  • Stock options,
  • CEO turnover
Publication Date
July, 2009
Citation Information
Atreya Chakraborty, Shahbaz A Sheikh and Narayanan Subramanian. "The relationship between incentive compensation and forced CEO turnover" Journal of Economics and Business Vol. 61 (2009)
Available at: http://works.bepress.com/shahbaz_sheikh/2/