Some Retiring CEOs Take Good Stock Prices with Them

October 22, 2009 ( - A new study indicates that companies that use Supplemental Executive Retirement Plans (SERPs) could see their shares suffer when the CEO departs.

The study found that for Fortune 1000 companies in the 1997-2006 period, stock prices lagged those of peers by 8.3% over three years following the retirements of CEOs whose SERPs were based on their performance in their last years, Reuters reports. Professor Paul Kalyta of McGill University in Montreal, author of the study, said the CEO “has strong incentives to make accounting choices that increase firm short-term income and, therefore, amplify the value of his/her pension,” leaving the shares of companies with big CEO SERPs “temporarily overpriced.”

According to Reuters, Kalyta noted that when the market knows groundwork for change has been laid, CEO retirements on average have little impact on long-term stock prices. However, he found a positive correlation between the size of CEO SERPs and the degree to which stocks of companies that have them lag the market after the CEOs step down.

The study covered 388 CEOs, of whom about 70% had SERPs and 44% had SERPs contingent on performance during the period determining the size of the CEOs’ pensions.

The study is published in the current issue of The Accounting Review, a publication of the American Accounting Association.