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The Executive Turnover Risk Premium
Author(s) -
PETERS FLORIAN S.,
WAGNER ALEXANDER F.
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12166
Subject(s) - dismissal , compensation (psychology) , executive compensation , wage , business , identification (biology) , risk premium , risk compensation , turnover , labour economics , economics , monetary economics , psychology , medicine , botany , management , family medicine , human immunodeficiency virus (hiv) , political science , psychoanalysis , law , biology
We establish that CEOs of companies experiencing volatile industry conditions are more likely to be dismissed. At the same time, accounting for various other factors, industry risk is unlikely to be associated with CEO compensation other than through dismissal risk. Using this identification strategy, we document that CEO turnover risk is significantly positively associated with compensation. This finding is important because job‐risk‐compensating wage differentials arise naturally in competitive labor markets. By contrast, the evidence rejects an entrenchment model according to which powerful CEOs have lower job risk and at the same time secure higher compensation.