CEO Compensation around Corporate Spinoffs

Abstract

Our study examines whether CEO compensation decreases in response to the reduction in firm size after a corporate spinoff. We find overall that CEO pay decreases subsequent to the spinoff, consistent with efficiency theory. However, the decrease is driven by the pay adjustment ac- companying CEO turnover around the spinoff. New CEOs hired around the spinoff have little bargaining power in regards to their compensation and thus we observe a decline in CEO compensation around these spinoff events. The compensation of those CEOs which span the spinoff event does not decrease, consistent with the notion of CEO entrenchment