Title: Egregious separation payments? The role of internal and external corporate governance

Authors: Cyrine Ben-Hafaïedh; Pierpaolo Pattitoni; Barbara Petracci

Addresses: IESEG School of Management, University of Lille, CNRS, UMR 9221 – LEM – Lille Economie Management, F-59000 Lille, France ' Department of Statistical Sciences 'Paolo Fortunati', University of Bologna, Bologna, Italy ' Department of Management, University of Bologna, Bologna, Italy

Abstract: Egregious, unfair, unethical, and immoral are all adjectives that the public and shareholder activists use to describe separation payments, which are payments made to executives who leave firms for various reasons. Such complaints often cite corporate governance issues as well, noting the potentially problematic relationships between executives' and board members' compensation levels. However, some studies of separation pay agreements suggest a lack of any significant relationship between the quality of corporate governance and separation payments. Using a unique, hand-collected dataset pertaining to actual payouts received by the top executives who left their posts between 2002 and 2013 in Italy, this study reveals instead that better quality corporate governance, in both internal and external dimensions, helps regulate the level of separation payments. In turn, it can offset stakeholders' perceptions of unfairness and the resulting negative consequences for the firm; such governance also can help minimise the prevalence of pay-for-failure cases.

Keywords: boards; corporate governance; ethics; executive compensation; separation payments.

DOI: 10.1504/IJBGE.2024.138173

International Journal of Business Governance and Ethics, 2024 Vol.18 No.3, pp.241 - 267

Accepted: 28 Sep 2022
Published online: 30 Apr 2024 *

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