Three Essays on CEO Severance Pay
Callahan, Conor John
Doctor of Philosophy
The majority of CEOs at U.S. public companies are promised severance pay in their compensation packages, yet researchers have thus far rarely considered the importance of these arrangements. This dissertation consists of three essays on CEO severance pay. My first essay draws upon agency theory to empirically demonstrate that a greater proportion of severance pay can offset employment risk for newly appointed executives, leading to firm strategies with greater distinctiveness. I also find that this relationship is amplified when CEOs receive a greater proportion of stock option payment in their initial package but attenuated when CEOs have appointed a greater proportion of directors on the board. Findings from my second essay present empirical evidence as to which incoming CEOs have a greater proportion of severance pay in their initial employment agreement. Specifically, I find general support for my theoretical argument that factors associated with the employment risk of incoming CEOs are also antecedents to the proportion of severance pay awarded to CEOs. The third essay of my dissertation is conceptual, and considers the ex-post impact of severance payments to dismissed CEOs. In this essay I develop our understanding of the outcomes impacting firms which award such payments. This dissertation can contribute to strategy research by highlighting the importance of CEO severance pay as a form of executive compensation.
CEO severance; risk