Initial compensation of new CEOs hired in turnaround situations

Abstract

Our paper examines the initial compensation of new CEOs hired in turnaround situations. Building on prior literature on executive job demands, we posit that new CEOs hired in turnaround situations will receive higher pay, particularly higher performance-based pay, and that the pay premium will incentivize them to undertake retrenchment and restructuring turnaround initiatives. An interaction between pay premium and CEO credentials is shown to have a stronger effect on the extent to which firms engage in such turnaround initiatives. Our empirical results, based on 98 new CEOs hired in 223 turnaround situations, largely support our arguments. We discuss the contribution of our study to the CEO compensation, executive job demands, and corporate turnaround literature. Copyright © 2014 John Wiley & Sons, Ltd.