Managerial incentives in the presence of golden handshakes

Yi Jiang

Finance Research Letters, 2017, vol. 20, issue C, 177-183

Abstract: This paper examines the effect of “golden handshakes” on managerial incentive compensation and risk-taking. Golden handshake, one on hand, increases CEO's pay-for-performance sensitivity by providing a high-powered incentive scheme. On the other hand, it also increases the sensitivity of CEO wealth to stock volatility, and induces CEOs to implement risky investment policy. I show the optimal incentive level increases in the presence of golden handshake. The results help to shed light on the important role of severance contract on the optimal executive compensation.

Keywords: Severance pay; Pay-for-performance; Vega; Optimal executive compensation (search for similar items in EconPapers)
JEL-codes: G32 G34 J33 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:20:y:2017:i:c:p:177-183

DOI: 10.1016/j.frl.2016.09.023

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