CEO turnover and relative performance evaluation by Dirk Jenter

Cover of: CEO turnover and relative performance evaluation | Dirk Jenter

Published by National Bureau of Economic Research in Cambridge, Mass .

Written in English

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Subjects:

  • Chief executive officers -- Dismissal of -- Econometric models

Edition Notes

Book details

StatementDirk Jenter, Fadi Kanaan.
SeriesNBER working paper series -- no. 12068., Working paper series (National Bureau of Economic Research) -- working paper no. 12068.
ContributionsKanaan, Fadi., National Bureau of Economic Research.
The Physical Object
Pagination49 p. ;
Number of Pages49
ID Numbers
Open LibraryOL17629262M
OCLC/WorldCa64685073

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This variation across the literature, coupled with a particularly wide variety of modeling and data choices, raises the general issue of result robustness in the CEO turnover context, as well as the specific issue of whether widespread violations of full relative performance evaluation are present in CEO turnover by: 4.

CEO Turnover and Relative Performance Evaluation. April ; is the ratio of net income-to-the book value of assets. higher forced CEO turnover-performance sensitivity, higher returns.

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CEO Turnover and Relative Performance Evaluation Dirk Jenter, Fadi Kanaan. NBER Working Paper No. Issued in March NBER Program(s):Corporate Finance, Labor Studies This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control.

CEO Turnover and Relative Performance Evaluation of peer performance in a sample of bank CEO turnovers from to Fi-nally, Gibbons and Murphy () examine a large sample of CEO successions from to and find that both market and industry shocks are filtered ary.

We use the growth rate of real per capita GDP (at constant prices) as the indicator for provincial economic performance. To reflect the fact that the central government uses the cumulative or average performance in its evaluation of provincial leaders (Li and Zhou, in press), we employ the moving average of provincial GDP growth rates over their tenure as the performance by: CEO Turnover and Relative Performance Evaluation.

Dirk Jenter and Fadi Kanaan * April Abstract. This paper shows that CEOs are fired CEO turnover and relative performance evaluation book bad firm performance caused by factors beyond their control.

Standard economic theory predicts that corporate boards filter out exogenousCited by: "CEO Turnover and Relative Performance Evaluation," Research PapersStanford University, Graduate School of Business.

Jenter, Dirk & Kanaan, Fadi, "CEO turnover and relative performance evaluation," LSE Research Online Documents on EconomicsLondon School of Economics and Political Science, LSE Library.

CEO Turnover and Relative Performance Evaluation. DIRK JENTER and FADI KANAAN* ABSTRACT. This paper shows that CEOs are fired afterbad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous industry and market shocks from firm performanceFile Size: KB.

Jenter, Dirk and Kanaan, Fadi, CEO Turnover and Relative Performance Evaluation (Ap ). Stanford University Graduate School of Business Research Paper No. ; MIT Sloan Research Paper No.

; Rock Center for Corporate Governance Working Paper No. Cited by:   The use of relative performance evaluation (RPE) to determine compensation improves contracting efficiency, reduces moral hazard, and provides effort incentive.

This study investigates how RPE usage in CEO compensation in Indian private sector firms is associated with a firm’s operating efficiency and asset productivity. It documents that firms with lower operating efficiency and asset Cited by: 1. Get this from a library.

CEO turnover and relative performance evaluation. [Dirk Jenter; Fadi Kanaan; National Bureau of Economic Research.] -- Abstract: This paper examines whether CEOs are fired after bad firm performance caused by factors beyond their control. Standard economic theory predicts that corporate boards filter out exogenous.

power on firms’ propensity to use relative performance evaluation. To the extent that CEO power affects the relation between performance and CEO turnover, the effect is the same for peer performance and idiosyncratic performance.

References Lunn, Mary, and Don McNeil,Applying Cox regressions to competing risks, Biometrics, 51, File Size: 64KB. CEO TURNOVER RESEARCH SPOTLIGHT.

KEY CONCEPTS. CEO Performance and Turnover Jing Huang, and Joshua R. Pierce. Robust Models of CEO Turnover: New Evidence on Relative Performance Evaluation. Social Science Research Network. Dirk Jenter and Fadi Kanaan. CEO Turnover and Relative Performance Evaluation. Journal of Size: KB.

Jenter, Dirk and Kanaan, Fadi () CEO turnover and relative performance evaluation. Journal of Finance, 70 (5). ISSN Relative performance evaluation (RPE) in chief executive officer (CEO) compensation provides insurance against external shocks and yields a more informative measure of CEO actions.

I argue that empirical evidence on the use of RPE is mixed because previous studies rely on a Cited by: CEO experience and the proxy for annual firm performance, the performance-turnover relation in their sample is declining in tenure, consistent with our results, but only in their sub-sample of.

Our paper builds on the results of a large body of work5 on CEO turnover. One of the most documented facts is that relative performance evaluation (RPE) matters for CEO turnover: the probability of CEO turnover is negatively related to the performance of the firm relative to the industry (Barro and Barro (), Gibbons and Murphy ()).

and the relationship between CEO turnover and firm performance has been studied extensively. The prior literature has found only modest effects of firm performance on CEO turnover.

Depending on the sample and the performance measure used, the estimated probability of a forced CEO turnover is between 2 and 6 percentage points higher per year forCited by:   Free Online Library: The Effect of Ex-ante CEO Turnover Risk on Firms' Discretionary Expenditures.(Report, Abstract) by "Quarterly Journal of Finance and Accounting"; Business Economics Chief executive officers Forecasts and trends Executive dismissals Analysis Laws, regulations and rules Industrial research South Korea United States Personal income.

The prior literature has found only modest effects of firm performance on turnover. CEO Depending on the sample and the performance measure used, the estimated probability of a forced CEO turnover is between 2 and 6 percentage points higher per year for a bottom decile performer than File Size: KB.

also referred to as relative performance evaluation (RPE). However, there is little empirical evidence of RPE in the literature (e.g., Antle and SmithJanakiraman, Lambert and Larcker ). In fact, a widespread feature of CEO pay, especially those of stock option plans in recentCited by: In the more recent period sincetotal CEO turnover increases to %, implying an average tenure of just over six years.

Internal turnover is significantly related to three components of firm performance - performance relative to industry, industry performance relative to the overall market, and the performance of the overall stock market.

Most organizations include a mix of qualitative and quantitative metrics when evaluating CEO performance, according to the "Hay Group/Agenda CEO. and private companies were polled in the Survey on CEO Performance Evaluations, which studied how CEOs themselves and directors rate both chief executive performance as well as the performance evaluation process.

When directors were asked to rank the top weaknesses of their CEO, “mentoring skills” and “board engagement” tied for the #1File Size: 1MB.

cations: First, absolute performance affects CEO turnover. Second, relative performance affects turnover despite the fact that there are no information asymmetries or agency problems in our model. Third, industry outsiders are chosen as replacement managers after poor relative and absolute performance leads to terminations.

Fourth, per. In the more recent period sincetotal CEO turnover increases to %, implying an average tenure of just over six years.

Internal turnover is significantly related to three components of firm performance – performance relative to industry, industry performance relative to the overall market, and the performance of the overall stock market.

Product Market Peers and Relative Performance Evaluation. Abstract Relative Performance Evaluation (RPE) theory predicts that firms filter out common shocks (i.e., those affecting the firm and its peers) while evaluating CEO and that the extent of performance filtering increases with.

PERFORMANCE EVALUATION PROCESS FOR THE. CHIEF EXECUTIVE OFFICER. Benchmarks. The following documents constitute the benchmarks against which the review takes place: • A statement of goals or primary objectives for the year under review -the annual performance contract. These goals will have been developed by the Chief Executive Officer.

In other contemporaneous work, Lee et al. find that, when performance is poor, a positive relation exists between the likelihood of CEO turnover and absolute management forecast also find this relation is stronger in a sample of CEOs in the lowest quartile of CEO tenure. These results are consistent with our main hypothesis; however, the focus of our study is on the moderating Cited by: CEO Turnover–Performance Sensitivity in Private Firms 20 March | Journal of Financial and Quantitative Analysis, Vol.

52, No. 2 Boards, and the Directors Who Sit on Them I thank Benjamin Hermalin and Michael Weisbach for their comments and for inviting me to write this by: First, the CEO performance evaluation is typically performed by the Board or a sub-committee of the Board of Directors.

In the case of private Companies, the CEO performance evaluation may be performed by the owners, the partners, trustees or an advisory Board that has been assembled by the owners to provide governance oversight. Measured individual performance often depends on random factors which also affect the performances of other workers in the same firm, industry, or market.

In these cases, relative performance evaluation (RPE) can provide incentives while partially insulating workers from the common uncertainty. Basing pay on relative performance, however, generates incentives to sabotage the measured. A key performance indicator (KPI) is a value used to monitor and measure effectiveness.

Although some, like net profit margin, are nearly universal in business, most industries have their own key performance indicators as well.

Some Examples of KPIs. KPIs are intrinsically linked to a firm's strategic goals, Managers use the indicators to. CEO Performance Evaluation.

Regular, purposeful, CEO performance evaluation by the board is a cornerstone of effective governance. According to Spencer Stuart’s Board Index, 91% of directors surveyed said their CEO’s performance is evaluated annually. Performance evaluation at the CEO level is difficult.

Rivero and Nadler () note that the difference between a good evaluation process in which everyone wants to participate and one that becomes mere window dressing is the CEO’s attitude toward the process and reactions to the feedback. At the same time, an ad hoc process sprung on the CEO.

But ultimately, the CEO performance evaluation provides a critical foundation and important context for those decisions.

Share. This work is licensed under a Creative Commons Attribution International License. Permissions beyond the scope of this license are available in our Terms and Conditions. Committee evaluates the CEO’s performance ratings for each goal. Section 3: CEO Development Plan The CEO Performance Evaluation Committee and the CEO identify areas for development and agree on a development plan.

At the mid-year and year-end reviews, the CEO and the CEO Performance Evaluation Committee meet to discuss progress. Section 4:File Size: 72KB. Performance-induced CEO turnover declines slowly over at least the first 16 years of tenure. Turnover rates for rank-and-file employees peak after months of tenure, and then decline rapidly (Farber (, )).

This suggests that learning about abilityFile Size: 1MB. explanations for the behavior of that financial variable surrounding CEO turnover.

Poor stock-price and earnings performance preceding CEO turnover, for example, is attributed to performance-related CEO dismissals [Coughlan and Schmidt () Warner et al. (), Weisbach ()]. The move to. The following is one sample form that might be used by the Board to evaluate the Chief Executive.

This sample should be customized to the particular culture and purpose of the agency by modifying the performance criteria (in the following table) as appropriate for the organization, inserting those criteria in the table below, and conducting the evaluation using the updated table.formal performance review and appraisal of the CEO.

Many organisations also incorporate the CEO’s annual remuneration review in that process. The principles of the performance review and evaluation process might include: • Continuous improvement; • Review and assessment of historical performance against: job description and expectations.The sensitivity of CEO turnover to firm performance may be stronger in either closely held or publicly traded stock insurers since each type has its own specific advantage in terms of corporate governance.

Accordingly, the relative turnover performance sensitivity of closely held and publicly traded stocks is ultimately an empirical issue.

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