Abstract
We investigate the consequences for losing competitors following the end of a promotion tournament. We examine CEO tournaments and find that the total incentives of non-promoted executives (NPEs) are likely to decrease significantly at the end of a tournament based on evidence of their lower future promotion prospects and limited adjustments to their explicit incentives. This leads to an increase in turnover of NPEs as compared to a matched sample of control executives. Evidence indicates that departed weak (strong) NPEs have worse (better) career outcomes, suggesting two simultaneous effects: 1) low quality managers are weeded out by the firm, and 2) high quality managers leave because firms are unable to adjust their incentives to retain them. Moreover, firms that use a two-step CEO succession plan with an heir apparent are likely to experience similar, but less dramatic, changes in their management team than firms that use a single CEO tournament.
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