Posted by Jin Xu, Virginia Tech; and Jun Yang, Indiana University, on Monday, November 7, 2016
Editor's Note: Jin Xu is Assistant Professor of Finance at Virginia Tech Pamplin College of Business; and Jun Yang is Associate Professor of Finance at Indiana University Kelley School of Business. This post is based on a recent article by Professors Xu and Yang. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, by Lucian Bebchuk and Jesse Fried.
Starting with Lewellen (1968), scholars have examined many facets of the executive compensation plan: salary, annual bonuses, stock and options, pensions, and, more recently, severance pay. A unique component that has largely been overlooked, however, is the signing bonus. Labeled by the media as “golden hellos”, the signing bonus is typically awarded to an executive who is identified by the board of directors as having special skills that are critical for the firm’s success. It is a one-time, upfront award granted when an executive assumes a new post and is arranged separately from the executive’s annual compensation plan.