Layoffs, Top Executive Pay, and Firm Performance

Kevin F. Hallock

132 citations0/0 files storedeCommons (Cornell University)

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Corporate Finance and Governance Labor market dynamics and wage inequality Organizational Downsizing and Restructuring

Abstract

This paper examines the connection between layoffs, executive pay, and stock prices. Firms that announce layoffs in the previous year pay their CEOs more, and give their CEOs larger percentage raises than firms which do not have at least one layoff announcement in the previous year. However, the likelihood of announcing a layoff varies dramatically along other dimensions, for example firm size, which are also correlated with CEO pay. Once firm-specific fixed effects are controlled for, the CEO pay premium for laying off workers disappears. In addition, there is a small negative share price reaction to layoff announcements. Copyright 1998 by American Economic Association.

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References

1985Using daily stock returns 1997Event Studies in Economics and Finance 1985Corporate performance and managerial remuneration 1991RESEARCH NOTES. LAYOFF ANNOUNCEMENTS AND STOCKHOLDER WEALTH.1999Executive Compensation: Six Questions that Need Answering 1990Plant-closing decisions and the market value of the firm

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