Stock-Based Compensation and Top Management Turnover

Hamid Mehran and David Yermack

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: We test the hypothesis that corporate managers leave their jobs less often when they receive stock-based compensation. In a sample of CEOs from 452 large U.S. companies between 1984 and 1991, we find inverse associations between the probability of CEO turnover and the amount of stock option compensation in relation to cash pay. The association is even stronger when we exclude apparently involuntary CEO turnover. Our results suggest that stock-based compensation plays a significant role in helping firms retain the services of top managers.

Date: 1996-05
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