We document that firms can effectively retain executives by granting deferred equity pay. We show this by analyzing a unique regulatory change (FAS 123-R) that prompted 720 firms to suddenly eliminate stock option vesting periods. This allowed CEOs to keep an additional $1.5 million in equity when departing the firm, and we find that voluntary CEO departure rates subsequently rose from 6% to 19%. Our identification strategy exploits FAS 123-R’s almost-random timing, which was staggered by firms’ fiscal year ends. Firms that experienced departures suffered negative stock price reactions, and responded by increasing compensation for remaining and newly hired executives.
Erasmus Finance Seminars
- Speaker(s)
- Zacharias Sautner (Frankfurt School of Finance and Management, Germany)
- Date
- Tuesday, October 11, 2016
- Location
- Rotterdam