Hadlock, Fee find CEOs and non-CEO execs get fired at the same rate, for different reasons

Charles J. Hadlock

In a recent study of "forced turnover" among CEOs and top executives of 443 large firms, two Broad School finance professors found both classes of managers face dismissal at about the same rate, but that non-CEO firings can't be as closely related to a firm's stock performance as CEO firings can be.

According to Associate Professors Charles J. Hadlock and C. Edward Fee , their study, "Management Turnover Across the Corporate Hierarchy," in the Journal of Accounting and Economics, indicates that firms do continually eliminate underperforming executive personnel, but factors that are more subtle than stock price may affect the tenure of non-CEOs.

Ted Fee

In fact, they found that when CEOs lose their jobs, their immediate subordinates are very likely to be fired, particularly if the new boss is an outsider. "This evidence suggests that the value of a manager to the firm very much depends on the identity of those who are around the CEO - in other words, managers are being evaluated as a team," says Hadlock.

In their study, Hadlock and Fee also found that while a significant number of dismissed executives eventually landed new jobs, the positions they got were inferior to their old positions, based on such metrics as compensation and firm size. "Executives directly below the CEO certainly do not appear to have quiet lives," says Hadlock. "If they lose their positions, the consequences can be severe, and thus they should have strong incentives to take actions that allow them to maintain their positions. The most effective way to do this is to help keep the CEO in office, either by increasing firm performance or taking actions that entrench the CEO."

Click here for past home page stories