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This paper examines the amount and structure of the pay package for the departing CEO in a company around CEO succession. I find that the characteristics of the departing CEO compensation can provide valuable information regarding the incoming changes in corporate governance around the succession. Specifically, when a departing CEO is entrenched with a “better” compensation package characterized with a greater amount of pay in cash and in total at a lower risk, the CEO, after his retirement, is more likely to remain on the board as a director or become the chairman of the board, persuade the board to pick an insider rather than an outsider to be his successor, and to promote the company’s current president and/or chief operating officer to be the incoming CEO. These findings are consistent with the management entrenchment theory that when a CEO is entrenched with a greater discretionary power and better personal benefits, he is more likely to use his managerial power to continue his influence on the company even after he retires from the CEO position.

What can the departing chief executive compensation structure tell us?