Stock Option Compensation and Managerial Turnover

Raluca Georgiana Nastasescu ()
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Raluca Georgiana Nastasescu: Northern Illinois University, USA

REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, 2009, vol. 10, issue 2, 352-366

Abstract: This study examines the association between managerial turnover and equity-based compensation. I investigate whether stock options act to bond executives to their firms and whether retention of managers is a motivation of companies in designing CEO incentive contracts. The results show that stock options do negatively influence the probability of a CEO leaving the company. The monetary cost of losing the value of equity-based compensation package keeps the manager with his company. I also find that in deciding upon a CEO's compensation scheme, firms take into account the probability of a CEO resigning from the company in the next period and award more stock options to reduce the threat of turnover. In general, the results show that stock options have an important role in managers' retention by testing economic explanations for observed behavior.

Keywords: managerial retention; executive compensation; stock options; turnover; ownership. (search for similar items in EconPapers)
JEL-codes: J63 R53 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:rom:rmcimn:v:10:y:2009:i:2:p:352-366

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