The Role of Deferred Equity Pay in Retaining Managerial Talent

Radhakrishnan Gopalan (First Author), Sheng Huang (Participant Author), Johan Maharaja (Participant Author)

Research output: Contribution to journalJournal

6 Citations (Web of Science)
147 Downloads (Pure)

Abstract

We examine the extent to which deferred vesting of stock and option grants (deferred pay) helps firms retain executives. To the extent an executive forfeits all deferred pay if they leave the firm, deferred vesting will increase the cost (to the executive) of an early exit. The impact of deferred pay on executive retention, a key ingredient for firms to create shareholder value is hence an important empirical issue. Using pay duration proposed in Gopalan et al. (2014) as a measure of the extent of deferred equity, we find that CEOs and non-CEO executives with longer pay duration are less likely to leave the firm voluntarily. The talent retention role of deferred pay is mitigated by performance-vesting provisions and signing bonuses offered by industry peers. Moreover, we also find that voluntary turnover is less sensitive to pay duration for executives who are perceived to be more talented and have more firm-specific skills. Overall, our study highlights a strong link between compensation design and turnover of top executives. It suggests that firms take into account the need for retaining managerial talent in designing executive compensation.
Original languageEnglish
JournalContemporary Accounting Research
Issue numberEarly Access
DOIs
Publication statusPublished - 2021

Keywords

  • executive compensation
  • management turnover
  • pay duration
  • talent retention
  • turnover-performance sensitivity

Indexed by

  • ABDC-A*
  • SSCI

Fingerprint

Dive into the research topics of 'The Role of Deferred Equity Pay in Retaining Managerial Talent'. Together they form a unique fingerprint.

Cite this