Re­search: Per­so­nal Costs of Execu­ti­ve Tur­novers

Short Abstract

This study by Professor Kasper Meisner Nielsen examines the income loss following forced CEO turnovers using detailed income data from the Danish Tax Authorities. The analysis reveals that dismissed CEOs experience, on average, a 40% decline in personal income over the five years following turnover. This drop is primarily driven by reductions in labor and entrepreneurial income, while other income sources slightly increase. The income loss is significantly greater for executives with poor firm performance, indicating that the executive labor market penalizes perceived low managerial ability. Overall, the findings highlight that forced turnovers come with substantial personal costs for executives, underscoring their role as a powerful internal governance mechanism.

Key findings

• Substantial Personal Income Loss: CEOs who are forcibly removed from their positions experience a 35–45% reduction in personal income over the five years following dismissal, driven primarily by lower labor and entrepreneurial income.
• Labor Market as Main Driver: The income loss stems mainly from decreased labor market outcomes, rather than financial or passive income, indicating a real drop in professional opportunities and compensation.
• Performance Shapes the Penalty: Executives from underperforming firms face significantly higher personal costs, suggesting that forced turnover acts as a market signal of lower managerial ability.
• Skills and Industry Matter: CEOs with general management skills (rather than firm-specific experience) and those working in knowledge-intensive industries suffer smaller income losses after dismissal.
• Turnovers Reinforce Governance: The findings suggest that the threat of dismissal imposes real economic consequences, making forced CEO turnover a credible and effective tool in corporate governance.

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