Severance agreements, incentives and CEO dismissal

Clara Graziano and Annalisa Luporini ()

Economics Bulletin, 2017, vol. 37, issue 1, 440-447

Abstract: We analyze how severance pay can alleviate the conflict between firing a manager and simultaneously providing him with the incentive to exert effort before being fired. Contrary to previous literature, in our model severance pay is contingent on firm performance. We show that severance pay contingent on firm performance can solve the conflict by rewarding the manager only in case of investment success.

Keywords: managerial compensation; severance pay; firing policy (search for similar items in EconPapers)
JEL-codes: J3 M5 (search for similar items in EconPapers)
Date: 2017-03-05
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