Entrenchment and Severance Pay in Optimal Governance Structures  

Oleh:

Almazan, Andres ; Suarez, Javier

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 58 no. 2 (Apr. 2003), page 519-547.
Fulltext: p 519.pdf (265.52KB)

Isi artikel

This paper explores how motivating an incumbent CEO to undertake actions that improve the e¡ectiveness of his management interacts with the ¢rm’s policy on CEO replacement. Such policy depends on the presence and the size of severance pay in the CEO’s compensation package and on the CEO’s in£uence on the board of directors regarding his own replacement (i.e., entrenchment). We explain when and why the combination of some degree of entrenchment and a sizeable severance package is desirable. The analysis offers predictions about the correlation between entrenchment, severance pay, and incentive compensation.

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