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CEO Cash and Stock‐Based Compensation Changes, Layoff Decisions, and Shareholder Value
Author(s) -
Brookman Jeffrey T.,
Chang Saeyoung,
Rennie Craig G.
Publication year - 2007
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2007.00163.x
Subject(s) - layoff , cash , shareholder , shareholder value , executive compensation , stock (firearms) , business , compensation (psychology) , stock options , value (mathematics) , labour economics , finance , monetary economics , economics , unemployment , corporate governance , engineering , economic growth , mechanical engineering , psychology , machine learning , computer science , psychoanalysis
The chief executive officers (CEOs) of firms announcing layoffs receive 22.8% more total pay in the subsequent year than other CEOs. The pay increases result almost entirely from increases in stock‐based compensation and are found to persist. In addition, layoff announcements are accompanied by shareholder value increases averaging $40 million to $95 million. One‐time labor cost savings from layoffs average $65 million. We conclude that CEOs receive pay increases following layoffs as rewards for past decisions and to motivate value‐enhancing decisions in the future.