Job Security and CEO Compensation

James S. Ang () and Wei Chen
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James S. Ang: Florida State University
Wei Chen: Fuzhou Institute of Technology

Chapter 91 in Encyclopedia of Finance, 2022, pp 2139-2176 from Springer

Abstract: Abstract We analyze a sample of 2,914 hiring contracts and show how job security plays a role in pay negotiation. We find a significant impact of job security on CEO pay using both firm- and industry-level measures across US firms. In general, CEO candidates and the board members would trade pay for job security. We find this pay for job security also follows a hierarchy order; when a firm is unable to compensate job risk with a higher pay, the CEO will seek for alternative ways of compensation, including a severance agreement, a shorter grant vesting period, and an incentive plan metric that is easier to achieve. Moreover, job security has no value among risk-takers, and this value increases with CEO’s risk aversion. By examining the impact of job security under different market condition, we find that this pay concession disappears when the CEO labor market is more favorable to the CEOs.

Keywords: Job Security; CEO Compensation; Risk Preference; executive compensation; labor market; G41; J24; J33; J41; J63 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-91231-4_93

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DOI: 10.1007/978-3-030-91231-4_93

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