An Empirical Analysis of CEO Employment Contracts: What Do Top Executives Bargain For?

41 Pages Posted: 15 Apr 2004 Last revised: 9 Oct 2014

See all articles by Stewart J. Schwab

Stewart J. Schwab

Cornell Law School

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: April 9, 2004


In this paper, we examine the key legal characteristics of 375 employment contracts between some of the largest 1500 public corporations and their Chief Executive Officers. We look at the actual language of these contracts, asking whether and in what ways CEO contracts differ from what are thought of as standard employment contract features for other workers. Our data provide some empirical answers to several common assertions or speculations about CEO contracts, and shed light on whether these contracts are negotiated solely to suit the preferences of CEOs or have provisions that insure that the employers' interests are also safeguarded.

After giving an overview of the general characteristics of a CEO employment contract, and the process by which they are negotiated, we focus on five contracting issues: (1) the term just cause that defines when an executive can be terminated involuntarily with penalties; (2) the good reason termination clauses in the contract that permit an executive to leave voluntarily without financial penalties; (3) the non-competition clauses in the contract; (4) the use of arbitration clauses as a method of resolving contractual disputes; and (5) the contractual restrictions, if any, on the CEO selling stock options. We also discuss some of the less-well known economic terms of these contracts, including their length and the level of perquisites given to CEOs.

Keywords: CEO, Employment Contracts

JEL Classification: K2, K22, G30, G34, J30

Suggested Citation

Schwab, Stewart Jon and Thomas, Randall S., An Empirical Analysis of CEO Employment Contracts: What Do Top Executives Bargain For? (April 9, 2004). Washington and Lee Law Review, Vol. 63, p. 231, 2005, Cornell Law School Research Paper No. 04-024 , Vanderbilt Law and Economics Research Paper No. 04-12, Available at SSRN: or

Stewart Jon Schwab (Contact Author)

Cornell Law School ( email )

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Ithaca, NY 14853
United States
607.255.8584 (Phone)
607-255-7193 (Fax)

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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