This study examines the efficacy of compensation in encouraging corporate executives to promote corporate social responsibility (CSR). In particular, it closely examines the effect of a golden parachute (GP) on an executive's behavior toward CSR.,This study uses longitudinal data on 1,301 US firms for the period from 1993 to 2013. The data comes from Compustat, MSCI ESG STATS, RiskMetrics and ExecuComp.,We find an inverse association between current and long-term compensations and GP on firms' CSR. However, a test on the moderating effect discloses that a GP and long-term compensation jointly and positively increase the firms' CSR performance. This increase supports the idea that executives with a GP seek to maximize their long-term wealth by approving CSR projects that add value. The results also show that female executives are more likely to promote CSR than their male counterparts, and older executives are less willing to engage in CSR projects.,Adding a GP contractual clause to the executive compensation package could encourage greater engagement in CSR projects. The CEO with a GP will ensure that the firm engages in only value-enhancing CSR projects; this should align the interest of the society (greater firm engagement in CSR) with the interest of the firm (value maximization).,This study contributes to the literature by examining the moderating effect of a GP on the association between CSR and executive compensation.

Executive compensation and corporate social responsibility: does a golden parachute matter?

Severance agreements and the cost of debt

Do Golden Parachutes Matter? Evidence from Firms that Ultimately Filed for Bankruptcy

Upon examining the language used in recent SEC filings, we find that severance agreements are often paid whether or not the CEO leaves the firm due to a change in control. We hypothesize that since severance agreements compensate CEOs in the event of termination, CEOs with these agreements will have an incentive to increase firm risk and decrease effort. Consistent with this hypothesis, we document a significant positive relation between the use of severance agreements and the cost of debt (10% higher yield spreads for firms with severance agreements). The results hold after controlling for the probability of takeover, the probability of CEO turnover, and whether the firm has investment or non-investment grade debt. These results can be explained by an increase in firm risk and a higher likelihood of CEO turnover associated with severance agreements. Overall, the evidence suggests that the effects of severance agreements extend beyond takeovers, and that these additional implications are primarily negative for the firm and for debt holders in particular.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2818166_code142577.pdf?abstractid=2228300

Severance Agreements and the Cost of Debt

The subject of corporate governance—defined by Ryan, Buchholtz, and Kolb as “the roles, responsibilities, and balance of power among executives, directors, and shareholders” (2010: 673)—presents management scholars with a number of vexing problems. These problems have included such issues as executive compensation, the adoption of poison pills, the payment of greenmail, the establishment of golden parachutes, and resistance to many shareholder proposals on annual proxy ballots. While many of these issues are of concern mainly to scholars and shareholder activists, executive compensation, because of the ever-increasing multiple of executive pay to average worker pay (Economic Policy Institute, 2013), also resonates with many members of the general public.

“Agents without Principals” Revisited: Theorizing the Effects of Increased Shareholder Participation in Corporate Governance

Purpose – The purpose of this paper is to examine the effects of golden parachutes on shareholders' wealth when the measure is used as a compensation device instead of a takeover defense. The results show that the adoption of the measure has a negative influence on shareholders' wealth. These negative results are more prevalent for firms with an operating performance above their industry peers and are significantly influenced by the previous performance of the firm and the size of the golden parachute.Design/methodology/approach – Event study and regression analysis.Findings – The results show that the adoption of the measure has a negative influence on shareholders' wealth. These negative results are more prevalent for firms with an operating performance above their industry peers and are significantly influenced by the previous performance of the firm and the size of the golden parachute.Practical implications – Investors will have more information about the reaction of stock markets at the announcement...

Golden parachutes, managerial incentives and shareholders' wealth

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Golden parachutes, managerial incentives and shareholders' wealth