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Indiana University Bloomington

Department of Finance

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Research and Publications

Journal Articles

Contractual Versus Actual Separation Pay following CEO Turnover

2014, forthcoming Management Science

E. Goldman, P. Huang


Using hand-collected data, we document the details of the ex-ante severance contracts and the ex-post separation pay given to S&P500 CEOs upon departing from their companies. We analyze what determines whether or not a departing CEO receives separation pay in excess of her severance contract. We find that discretionary separation pay is, on average, $8 million, which amounts to close to 242% of a CEO’s annual compensation. We investigate several potential explanations for this phenomenon and find evidence that in voluntary CEO departures, discretionary separation pay represents a governance problem. In contrast, we find evidence that in forced departures, discretionary separation pay is used to facilitate an amicable and smooth transition from the failed ex-CEO to a new CEO. These results help to shed light on the dual role played by severance compensation and on the bargaining game played between the board and the departing executive.


Goldman, E., Huang, P. (2014), “Contractual Versus Actual Separation Pay following CEO Turnover,” forthcoming, Management Science.