CEO successor compensation: outside versus inside successions |
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| Authors: | Eahab?Elsaid IIIEmail author" target="_blank">Wallace?N?Davidson IIIEmail author Xiaoxin?Wang |
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| Institution: | (1) Accounting and Finance Department, University of Windsor, Windsor, ON, N9B 3P4, Canada;(2) Department of Finance: Mail Code 4626, College of Business and Administration, Southern Illinois University, Carbondale, IL 62901, USA |
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| Abstract: | We propose that outside CEO candidates will have greater bargaining power than insiders. As a result, outside CEO successors
will likely receive greater total compensation than inside CEO successors. Outside successors, meantime, pose more risk to
the hiring firm than inside successors due to higher information asymmetry. As a result, outside successor compensation packages
are tilted towards more performance-related pay-at-risk, while inside successor packages have a higher percentage in salary.
In addition, outside successors may want to utilize the structure of their compensation at their previous firm in their new
contracts. Using a sample of 99 firms with outside successors who were not CEO in their prior firms, matched by industry and
size to firms that hired inside candidates, we find evidence supporting these hypotheses. |
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