We analyze how severance pay can alleviate the conflict between firing a manager and simultaneously providing him with the incentive to exert effort before being fired. Contrary to previous literature, in our model severance pay is contingent on firm performance. We show that severance pay contingent on firm performance can solve the conflict by rewarding the manager only in case of investment success.
Severance agreements, incentives and CEO dismissal / Graziano, Clara; Luporini Florence, Annalisa. - In: ECONOMICS BULLETIN. - ISSN 1545-2921. - STAMPA. - 37:(2017), pp. 440-447.
Severance agreements, incentives and CEO dismissal
LUPORINI FLORENCE, ANNALISA
2017
Abstract
We analyze how severance pay can alleviate the conflict between firing a manager and simultaneously providing him with the incentive to exert effort before being fired. Contrary to previous literature, in our model severance pay is contingent on firm performance. We show that severance pay contingent on firm performance can solve the conflict by rewarding the manager only in case of investment success.
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