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Golden Handshakes: Rewards for CEOs Who Leave

Authors: Yermack, David
Issue Date: Aug-2004
Series/Report no.: FIN-04-020
Abstract: This paper studies separation payments made when CEOs leave their firms. In my sample of Fortune 500 companies these packages are widespread and lucrative. Almost 80 percent of CEOs receive separation pay, and its mean present value exceeds $4.5 million. Severance is positively associated with future pay that CEOs might expect until age 65, and is higher when CEOs depart involuntarily. Shareholders react negatively when separation agreements are disclosed, but only in cases of voluntary CEO turnover. Some evidence suggests that severance pay acts as a bonding device between the board and CEO, while other evidence accords with theories of rent extraction.
Appears in Collections:Finance Working Papers

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