Date of Award


Degree Name

Doctor of Philosophy


Business Administration

First Advisor



I investigate the relation between CEO equity compensation and employee layoffs. In particular, this study seeks to examine CEO stock-based incentives and managerial opportunism behavior for the sample of CEOs of firms announcing layoffs during 1997-2006. I investigate two issues. First, I measure the extent of CEO stock selling in the year of the announcement of employee layoffs. CEOs may want to avoid negative press coverage regarding their compensation because it may send a negative signal to the market if they reduce the companies' work force and may choose to not sell equity, which is consistent with efficient contracting theory. I find different responses by layoff CEOs toward stock option awards and toward option exercise. Layoff CEOs sell substantial shares after receiving stock options to diversify their portfolio risk, especially during a boom economy and with layoffs constituting a greater percentage of a firm's workforce. They, however, retain substantial amount of shares acquired on the exercise of options to avoid intensive negative press coverage on both layoff and option exercises. Second, I examine CEOs' opportunistic behavior to maximize their stock-based compensation value by controlling the timing of stock option awards surrounding layoff announcements, or by controlling the timing of layoff news announcements. My finding provides evidence that CEOs of firms announcing employee layoffs are more likely to receive stock options in advance of value-enhancing layoff announcements but subsequent to value-destroying layoff announcements. However, my results show that these stock prices start declining after news of CEO stock option awards are disclosed in proxy statements (which are published approximately three months after the end of company fiscal years). This may indicate that the stock market responds negatively to this "your pain, my gain" leadership style, as that corporate executives of firms announcing layoffs may have no ethic of shared sacrifice. Overall, I find that negative press coverage may motivate CEOs of firms announcing layoffs to substantially change their portfolio or ownership. Public scrutiny also limits CEOs' ability of conducting opportunistic behavior regarding manipulation of the timing of option awards and layoff announcements.




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