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Article
Publication date: 31 July 2009

Shane van Dalsem

The purpose of this paper is to investigate the effect of executive severance contract maturity policies on the likelihood of forced turnover and the length of tenure for…

Abstract

Purpose

The purpose of this paper is to investigate the effect of executive severance contract maturity policies on the likelihood of forced turnover and the length of tenure for CEOs who are forced from their positions.

Design/methodology/approach

The paper utilizes logistic and accelerated failure time models to test the hypothesis that severance contracts decrease information asymmetries resulting in an increased likelihood of forced turnover and a shortened tenure for those CEOs who are forced out.

Findings

The results provide evidence that fixed‐term severance contracts increase the likelihood of forced tenure and decrease the length of tenure for CEOs who experience a forced turnover during the period, while time‐independent contracts do not.

Research limitations/implications

The limitation is the possibility that an omitted variable jointly determines the likelihood of the presence of a severance contract and the effect on forced turnover. Future research should investigate other possibilities beyond the CEO coming from outside of the firm.

Practical implications

The findings confirm that the maturity policies of severance contracts affect forced turnover. The results suggest that there may be a benefit in designing severance contracts to expire to encourage more efficient turnover of underperforming CEOs.

Originality/value

This paper contributes to the empirical corporate finance and accounting literature by differentiating between forced and unforced turnover when analyzing the effects of severance contracts and demonstrating that the time dimension of severance contracts may provide the desired result of encouraging the identification of CEO‐firm mismatches.

Details

Managerial Finance, vol. 35 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 13 November 2009

Elke J. Jahn

Employment protection legislation defines social criteria according to which firms can dismiss workers. If firms evade the law, then negotiation about compensation begins…

Abstract

Purpose

Employment protection legislation defines social criteria according to which firms can dismiss workers. If firms evade the law, then negotiation about compensation begins. To reduce the legal and financial uncertainty often associated with ex post bargaining, the German government stipulate severance payments in the case of mutual agreements in law in 2004. This paper aims to examine whether social criteria affect the dismissal probability of workers.

Design/methodology/approach

The probability of receiving compensation and the factors determining the amount of severance payment are estimated when it comes to private negotiations about the termination of an employment contract. In addition, the effect of the reform of the employment protection legislation on the probability of receiving compensation and the amount of redundancy pay is analysed. A stepwise estimation strategy is developed to account for sample selection bias when examining which workers receive severance payments and the determinants of severance pay variation. Empirical evidence is provided using German panel data for the period 2000‐2006.

Findings

The paper shows that workers protected by law have the lowest probability of being dismissed. The expected severance payment and firm size increase the probability of receiving compensation while the amount of severance payment depends significantly on the way the employment relationship is dissolved. Contrary to the intention of the legislator, the reform increases the level of compensation.

Originality/value

The paper fills a gap in the literature by taking into account selectivity bias when estimating the probability of receiving redundancy pay and the size of compensation. The evidence also provides insights which may be useful for the ongoing discussion to reform employment protection legislation in Germany.

Details

International Journal of Manpower, vol. 30 no. 7
Type: Research Article
ISSN: 0143-7720

Keywords

Article
Publication date: 2 September 2014

Dennis Wesselbaum

The purpose of this paper is to compare two elements of lay-off costs in a dynamic model of the labor market and analyze the differences for business cycle dynamics and…

Abstract

Purpose

The purpose of this paper is to compare two elements of lay-off costs in a dynamic model of the labor market and analyze the differences for business cycle dynamics and welfare.

Design/methodology/approach

The paper builds a general equilibrium Real Business Cycle model and introduces firing costs and severance payments. Labor market frictions are assumed to follow the famous search and matching approach.

Findings

The paper finds that firing costs imply a higher volatility over the cycle and have stronger negative welfare effects. Severance payments have a lower volatility, reduce unemployment, and reduce welfare by a smaller amount.

Practical implications

Policy reforms should be aimed to use severance payments and reduce the ring cost component of lay-off costs.

Originality/value

Increasing welfare and a more stable business cycle could be supported by using severance payments instead of firing costs.

Details

Journal of Economic Studies, vol. 41 no. 5
Type: Research Article
ISSN: 0144-3585

Keywords

Book part
Publication date: 19 November 2003

Susan Handy

Abstract

Details

Handbook of Transport and the Environment
Type: Book
ISBN: 978-0-080-44103-0

Article
Publication date: 30 November 2021

Priyaranjan Jha and Rana Hasan

The purpose of this paper is to understand labor market regulations and their consequences for the allocation of resources.

Abstract

Purpose

The purpose of this paper is to understand labor market regulations and their consequences for the allocation of resources.

Design/methodology/approach

This paper constructs a theoretical model to study labor market regulations in developing countries and how it affects the allocation of resources between the less productive informal activities and more productive formal activities. It also provides empirical support for some theoretical results using cross-country data.

Findings

When workers are risk-averse and the market for insurance against labor income risk is missing, regulations that provide insurance to workers (such as severance payments) reduce misallocation. However, regulations that simply create barriers to the dismissal of workers increase misallocation and end up reducing the welfare of workers. This study also provides some empirical evidence broadly consistent with the theoretical results using cross-country data. While dismissal regulations increase the share of informal employment, severance payments to workers do not.

Research limitations/implications

The empirical exercise is constrained by the lack of availability of good data on the informal sector.

Originality/value

The analysis of the alternative labor market regulations analyzed in this paper in the presence of risk-averse workers is an original contribution to the literature.

Details

Indian Growth and Development Review, vol. 15 no. 1
Type: Research Article
ISSN: 1753-8254

Keywords

Article
Publication date: 1 March 1995

John D.F. Skåtun

Looks at a union model where a trade union leader represents unionmembers in dealing with the firm. The union leader is risk neutral andderives his utility solely from the…

726

Abstract

Looks at a union model where a trade union leader represents union members in dealing with the firm. The union leader is risk neutral and derives his utility solely from the union fees. The employment level is efficient, and equivalent to the contracts without a union leader, when the unemployed receive severance pay and wages and employment is included in the contract. In this case the outcome of the contract does not depend on whether severance pay is paid by the firm or is as a result of internal redistribution of income from employed to unemployed members. In contrast with the efficient bargaining literature, less than efficient levels of employment arise if severance pay is excluded. It is in the interest of the union leader that the unemployed receive no severance pay. This leads to a conflict of interest between the union leader and the members of the union.

Details

International Journal of Manpower, vol. 16 no. 2
Type: Research Article
ISSN: 0143-7720

Keywords

Article
Publication date: 1 January 1983

G.S. SAMS

It has long been established that when part of a parcel of land in one ownership is acquired compulsorily and the land which is retained is rendered less valuable as a…

Abstract

It has long been established that when part of a parcel of land in one ownership is acquired compulsorily and the land which is retained is rendered less valuable as a result the owner is entitled to compensation for that depreciation. The purpose of this article is to discuss whether a similar right to compensation arises where the land taken is itself rendered less valuable as a result of the severance.

Details

Journal of Valuation, vol. 1 no. 1
Type: Research Article
ISSN: 0263-7480

Article
Publication date: 1 June 2004

Bernadette Cross and Anthony Travaglione

Human resource management has entertained the rise of downsizing as a strategy for producing visible improvements to organizations. However, the history of downsizing has…

4845

Abstract

Human resource management has entertained the rise of downsizing as a strategy for producing visible improvements to organizations. However, the history of downsizing has failed to consistently provide the anticipated benefits. This study postulates that success is contingent upon the severance acceptors possessing characteristics least beneficial to the organization. The study explored 234 employees from a major Australian transport company, 141 who remained after the downsizing, and 93 who accepted severance packages. It was found that those employees who left showed significantly lower levels of affective and continuance commitment and job satisfaction, significantly higher levels of intention to turnover and absenteeism, and no significant difference for perceived organizational support. Furthermore, employee intention to turnover was significantly predicted by employees commitment and job satisfaction. This study concludes that downsizing should not be governed by retrenching employees in abundance, but should be guided by retaining those most valuable to the organization.

Details

Personnel Review, vol. 33 no. 3
Type: Research Article
ISSN: 0048-3486

Keywords

Article
Publication date: 9 August 2011

Riccardo Calcagno, Roman Kraeussl and Chiara Monticone

The purpose of this paper is to study the impact of the 2007 Italian severance payment reform on the cost and the access to credit for small‐ and medium‐sized enterprises (SMEs).

Abstract

Purpose

The purpose of this paper is to study the impact of the 2007 Italian severance payment reform on the cost and the access to credit for small‐ and medium‐sized enterprises (SMEs).

Design/methodology/approach

The authors study the implications of the reform adapting the theoretical credit‐rationing model of Holmstrom and Tirole, then estimate the capital outflows due to the reform and, using the theoretical prediction, assess its impact using mathematical simulations.

Findings

The authors predict that the reform may cause severe credit constraints to SMEs which cannot pledge enough collateral in order to obtain credit. The most direct consequences are to reduce in the long run the amount of liquid assets available to Italian firms, and to reduce their aggregate investment in a more than proportional way, due to access to credit restrictions. However, it will not increase the cost of intermediated finance, ceteris paribus.

Practical implications

The fact that the reform restricts access to credit, but does not increase the cost of debt, has important policy consequences, as public interventions subsidizing credit through a constant cost of debt may be ineffective.

Originality/value

While the topic has been analyzed in several respects (e.g. workers' participation to the reform, cost of an access to credit subsidy, etc.), no other study proposed an integrated view of these effects with a rigorous micro‐economic approach.

Details

Journal of Financial Economic Policy, vol. 3 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

Book part
Publication date: 16 November 2016

Claudia Trentini

In the last decade, Argentina has experienced a considerable decline in informal employment and wage dispersion. This paper extends a search model with exogenous human…

Abstract

In the last decade, Argentina has experienced a considerable decline in informal employment and wage dispersion. This paper extends a search model with exogenous human capital accumulation to include the informal sector. The model is parametrized to match Argentinian data between 1996 and 1998 – before the onset of the declining trend – and it is used to investigate the contribution of labor market measures to the falling informality, unemployment, and wage dispersion. The findings indicate that institutional factors did not contribute to the positive labor market trends observed; on the contrary, results show that higher severance pay and minimum wages increase informality and that the introduction of unemployment assistance contributed to the spread of informal contracts across the work force. Further, I find that compliance with minimum wage regulation strongly affects the final impact of these policies. While non perfect compliance might reduce unemployment, it reinforces the incentives of workers to move to the informal sector.

Details

Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting
Type: Book
ISBN: 978-1-78560-993-0

Keywords

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