Golden Handshakes: Rewards for Ceos Who Leave

40 Pages Posted: 3 Nov 2008

See all articles by David Yermack

David Yermack

New York University (NYU) - Stern School of Business

Date Written: August 2004

Abstract

This paper studies separation payments made when CEOs leave their firms. In my sample ofFortune 500 companies these packages are widespread and lucrative. Almost 80 percent of CEOs receive separation pay, and its mean present value exceeds $4.5 million. Severance is positively associated with future pay that CEOs might expect until age 65, and is higher when CEOs depart involuntarily. Shareholders react negatively when separation agreements are disclosed, but only in cases of voluntary CEO turnover. Some evidence suggests that severance pay acts as a bonding device between the board and CEO, while other evidence accords with theories of rent extraction.

Suggested Citation

Yermack, David, Golden Handshakes: Rewards for Ceos Who Leave (August 2004). NYU Working Paper No. FIN-04-020, Available at SSRN: https://ssrn.com/abstract=1294455

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