CEO compensation and succession: An empirical analysis

This dissertation employs a sample of 521 successions chosen from the ExecuComp database over a 12-year period from 1992 to 2003 to study the relation between compensation and succession. Successions in financial institutions and utilities are excluded from the sample.;Paired samples t-tests and Wilcoxon signed rank tests for the predecessor and successor compensation around successions indicate that successors are loaded with options and restricted stocks in order to link their compensation to firm performance. The successor pay-performance compensation is on average greater than that of the predecessor. The successor fixed salary is on average less than that of the predecessor because salary is not linked to firm performance. The successor total compensation is on average greater than that of the predecessor due to the unrelenting competition between firms to hire the best CEO that they can afford.;OLS regressions show that the board structure affects the pay-performance compensation of the successors relative to the predecessors and that the compensation committee structure affects the successor pay-performance compensation. The regression analysis shows that when the outside successor does not come from the firm's industry the successor other annual compensation is greater than that of the predecessor. The regression analysis also shows that when the inside successor was designated as the heir apparent the successor total compensation is less than that of the predecessor.;The contribution of the dissertation is that it might be among the first studies to examine the relation between CEO succession and total compensation and its different components. Most of the previous literature examined either succession or compensation. Very few studies attempted to examine both compensation and succession and study the different ways in which they affect each other.