Abstract
Prior research has shown that CEO succession is often followed by an increase in turnover rates among non-CEO executives. However, the social mechanism that explains why CEO succession tends to trigger non-CEO turnover has not been well understood. Addressing this gap, the present study integrates three largely separate literatures—CEO succession, executive compensation, and executive turnover—to elucidate the relationship between CEO succession and subsequent non-CEO turnover. Drawing on the pay equity theory, the model predicts that the perception of pay inequity created by the changes in CEO compensation following CEO succession contributes to the increased turnover among the non-CEO executives. The theory also predicts that the effect of pay inequity is stronger when the successor CEO is chosen from those who are perceived to be similar to the existing non-CEO executives (e.g., inside CEOs) than when the successor is perceived to be different from the non-CEOs (e.g., outside CEOs). Data from nearly 3,000 United States executives suggest that the widening pay gap between the new CEO and the incumbent non-CEO executives increases turnover rates among the non-CEO executives. This effect is greater for inside CEO succession than for outside CEO succession.
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