Structuring more-effective executive severance contracts

Explains why executive severance contracts contingent on a change in control (i.e. golden parachutes) have developed and reviews previous relevant research. Develops a mathematical model of their effects on shareholder wealth and uses it to determine an optimal contract which aligns the interests of...

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Bibliographic Details
Published inManagerial finance Vol. 25; no. 10; pp. 13 - 21
Main Authors Born, Jeffrey A, Faria, Hugo J, Trahan, Emery A
Format Journal Article
LanguageEnglish
Published Patrington MCB UP Ltd 1999
Emerald Group Publishing Limited
Subjects
Abnormal returns
Costs
Effectiveness
Executive compensation
Executives
Golden parachutes
Hypotheses
Mathematical models
Severance pay
Stockholders
Studies
United States > US
Employment contracts
Alignment
Accounting research
Mergers and acquisitions
Top management
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Summary:Explains why executive severance contracts contingent on a change in control (i.e. golden parachutes) have developed and reviews previous relevant research. Develops a mathematical model of their effects on shareholder wealth and uses it to determine an optimal contract which aligns the interests of shareholders and managers (i.e. where marginal benefit to shareholders equals marginal cost of the contract). Points out that these contracts alone do not guarantee that managers will aim to maximize shareholders wealth: they should form only part of a package of compensation agreements to align their interests.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0307-4358
1758-7743
DOI:10.1108/03074359910766190