Management Turnover as Change Agent

Monday, October 26, 2009

Recommended Reading - CEO Pensions Encourage Earnings Games, Business Week Management IQ

Nanette Byrnes wrote a fascinating blog last Friday for Businessweek’s Management IQ. Her blog piece examined a study by Paul Kaltya of McGill University that looked at how certain CEOs have managed their respective company prior to retirement and what it has meant in relation to stock performance and the CEO’s respective retirement payouts. Byrnes wrote,

The study by Paul Kalyta of McGill University finds that a CEO whose retirement pay depends in part on the company’s performance in his final years at the helm, will manage earnings up as he approaches retirement. After he’s gone, the stocks tend to drop sharply.

By contrast, companies whose CEOs don’t have this type of provisions in their Supplemental Employee Retirement Plan, or SERP, don’t suffer similar spikes and drop offs.

Event-driven funds should take a look at the study as well as anyone interested in executive turnover and its potential impact on stock performance. The report can be found in the Accounting Review as pointed out in Ms. Byrnes piece.

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