There will be two VGSF research seminars on January 11 at the Institute for Advanced
Studies (HS II), Stumpergasse 56, 1060 Vienna:
Seminar 1 (14:00-15:30)
Speaker: Alexander Wagner (University of Zurich)
Topic: The Executive Turnover Risk Premium
Seminar 2 (16:00-17:30)
Speaker: Jeffrey Zwiebel (Stanford University)
Topic: Executive Pay, Hidden Compensation, and Managerial Entrenchment
Both papers can be downloaded from the VGSF homepage (Activities & Events-->
Research Seminars). The abstracts are attached below.
Alexander and Jeff will visit VGSF on Friday (Jan 11) morning. If you would like to meet
them at BWZ, please let me know as soon as possible.
Kind regards,
Youchang Wu
Abstract 1: Executive compensation has increased dramatically over the past 15 years, but
so has forced CEO turnover. Previous research shows that fired CEOs do poorly later on in
their careers and some forfeit their previous compensation. We argue that these adverse
consequences of forced turnover explain part of the secular rise and cross-sectional
variation of CEO pay. We fnd a large premium for exogenous turnover risk for the CEOs of
the largest US corporations for the years 1993-2001: a one-percentage point increase in
the probability of involuntary turnover is associated with about 10 percent more in terms
of risk-neutral compensation. We show that this relation is unlikely to be driven by
reverse causation or a general tendency towards stronger performance sensitivity of both
pay and turnover.
Abstract 2: We consider a "managerial optimal" framework for top executive
compensation, where top management sets their own compensation subject to limited
entrenchment, instead of the conventional setting where such compensation is set by a
board that maximizes firm value. Top management would like to pay themselves as much as
possible, but are constrained by the need to ensure sucient effciency to avoid a
replacement. Shareholders can remove a manager, but only at a cost, and will therefore
only do so if the anticipated future value of the manager (given by anticipated future
performance net of future compensation) falls short of that of a replacement by this
replacement cost. In this setting, observable compensation (salary) and hidden
compensation (perks, pet projects, pensions, etc.) serve different roles for management
and have different costs, and both are used in equilibrium. We examine the relationship
between observable and hidden compensation and other variables in a dynamic model, and
derive a number of unique predictions regarding these two types of pay. We then test these
implications and find results that generally support the predictions of our model.