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Clara Graziano and Annalisa Luporini
''Severance agreements, incentives and CEO dismissal''
( 2017, Vol. 37 No.1 )
We analyze how severance pay can alleviate the conflict between firing a manager and simultaneously providing him with the incentive to exert effort before being fired. Contrary to previous literature, in our model severance pay is contingent on firm performance. We show that severance pay contingent on firm performance can solve the conflict by rewarding the manager only in case of investment success.
Keywords: managerial compensation, severance pay, firing policy
JEL: J3 - Wages, Compensation, and Labor Costs: General
M5 - Personnel Economics: General
Manuscript Received : Sep 18 2016 Manuscript Accepted : Mar 05 2017

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