Egregious separation payments? The role of internal and external corporate governance

Cyrine Ben-Hafaiedh, Pierpaolo Pattitoni and Barbara Petracci

International Journal of Business Governance and Ethics, 2024, vol. 18, issue 3, 241-267

Abstract: Egregious, unfair, unethical, and immoral are all adjectives that the public and shareholder activists use to describe separation payments, which are payments made to executives who leave firms for various reasons. Such complaints often cite corporate governance issues as well, noting the potentially problematic relationships between executives' and board members' compensation levels. However, some studies of separation pay agreements suggest a lack of any significant relationship between the quality of corporate governance and separation payments. Using a unique, hand-collected dataset pertaining to actual payouts received by the top executives who left their posts between 2002 and 2013 in Italy, this study reveals instead that better quality corporate governance, in both internal and external dimensions, helps regulate the level of separation payments. In turn, it can offset stakeholders' perceptions of unfairness and the resulting negative consequences for the firm; such governance also can help minimise the prevalence of pay-for-failure cases.

Keywords: boards; corporate governance; ethics; executive compensation; separation payments. (search for similar items in EconPapers)
Date: 2024
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