The totality of change-in-control payments |
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| Institution: | 1. Lingnan University, Hong Kong, China;2. Shanghai University of Finance and Economics, Shanghai, China;3. China Europe International Business School, Shanghai, China;4. Central University of Finance and Economics, Beijing, China;1. Accounting and Finance Discipline Group, Business School, The University of Western Australia, Perth 6009 Western Australia, Australia;2. UQ Business School, The University of Queensland, Brisbane 4072 Queensland, Australia;1. University of Texas at El Paso, Economics and Finance Department, College of Business Administration, Rm. 247, El Paso, TX 79968-0543, USA;2. New Mexico State University, Finance Department, College of Business, Rm. 317, Las Cruces, NM 88003-8001, USA;1. Department of Finance and International Business, Fox School of Business, Temple University, Philadelphia, PA 19122, USA;2. School of Management, Tokyo University of Science, Simokiyoku 500, Kuki-shi, Saitama-ken 346-8512, Japan;3. ACAP Advisory Public Company Limited, 195 Empire Tower, 2-3, 22nd Fl., South Sathorn Road, Yannawa, Sathorn, Bangkok 10120, Thailand |
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| Abstract: | Most extant studies consider golden parachutes as the totality of change-in-control payments. However, for the median CEO of firms listed in the S&P SmallCap 600 index in 2009, golden parachute payments are only 46% of total change-in-control compensation. We measure total change-in-control payments using newly available data for this sample. Our results show that the total payments to the departing CEO are estimated at 1.1% of market value (on average). We also show that newly earned compensation (as opposed to accelerated vesting of lagged incentive pay) makes up approximately half of total change-in-control payments for the median CEO, and these two components of severance pay are positively correlated (contrary to existing theory). Furthermore, change-in-control payments do not appear to impede takeover offers or affect takeover premiums. Total change-in-control payments are small on average, and boards seem to take care in negotiating these terms with incumbent CEOs so that change-in-control payments do not adversely affect the firm's prospects in the takeover market. |
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