The Effectiveness of Golden Handcuffs

Executive compensation includes components intended to acquire and retain executives as well as to align their goals with those of shareholders. This paper focuses on retention compensation, commonly known as "golden handcuffs", including stock options, long-term incentive plans and restricted stock. The extant literature examines CEOs that change jobs despite their golden handcuffs, and argues that such compensation is not an effective means of executive retention. In this paper, I compare the golden handcuffs of a set of CEOs who change jobs to a matched set of those who do not in order to determine the efficacy of such compensation for executive retention. I find that restricted stock is positively related to CEO turnover whereas stock options are negatively related.