Losers of CEO Tournaments: Incentives, Turnover, and Career Outcomes Eric W. Chan, John H. Evans III, and Duanping Hong
The Accounting Review, Vol. 97, No. 6 (October 2022), pp. 123-148
OVERVIEW
We investigate the consequences of participating in CEO promotion tournaments for nonpromoted executives (NPEs). We find that NPEs’ total incentives decrease after a tournament: their future promotion prospects dwindle, and subsequent increase in compensation is limited. Consistent with the theory that NPEs leave a company in response to reduced incentives, our results indicate that turnover is higher for NPEs who were more competitive for promotion, especially those who compete in open tournaments without an heir apparent versus closed tournaments with an heir apparent or in tournaments won by an outsider rather than an insider. Subsequent career outcomes suggest that the labor market assesses NPEs who leave after open tournaments and tournaments with an outsider winner relatively favorably. Overall, the evidence suggests that promotion tournaments not only weed out low-quality managers but also cause high-quality managers to leave.
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