Structuring More-Effective Executive Severance Contracts
Article Abstract:
Keywords: Severence, Agency Costs, Corporate Control, Golden Parachute Executive severance contracts that are contingent on a change in control, commonly referred to as golden parachutes, offer the potential to reduce the substantial agency costs that arise during a contest for corporate control. Prior research on golden parachute contracts shows that they do not impact shareholder wealth, other than through signaling an increased probability of a contest for control. This is not surprising given the structure of existing contracts that provides for a lump-sum payment that is small relative to the value of the firm. The objective of this paper is to develop a more-effective executive severance contract, that will align the interests of target firm managers and shareholders in the event that managers are called upon to sell the firm. We develop a model of an optimal contract that provides for a small lump-sum payment combined with a payment that is linked to the increase in the value of the firm achieved during the sale. This contract leads to an equilibrium that is Pareto optimal for managers and shareholders.
Publication Name: Managerial Finance
Subject: Business
ISSN: 0307-4358
Year: 2000
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NBA players: are they paid for performance?
Article Abstract:
This paper studies the relationship between NBA players' salaries and their performance on the basketball court. In other industries executive compensation has been found to have a weak yet significant link to company performance. We find a positive and significant relationship between an NBA player's salary and a player's points per game and rebounds per game for 1997-98 basketball season. These results may be improved by considering qualitative factors and including more years of data.
Publication Name: Managerial Finance
Subject: Business
ISSN: 0307-4358
Year: 2000
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