His research project, “Personal Costs of Executive Turnovers,” has been published in The Journal of Finance, the most prestigious international journal in the field. In the study, Kasper Meisner Nielsen systematically collected data on all CEO turnovers in listed Danish companies over a 30-year period from 1990 to 2021.
Every other CEO turnover is a dismissal“I wanted to uncover two things: Does the board step in and dismiss the CEO when the company underperforms? And does dismissal have such serious consequences that it serves as a daily motivator to create shareholder value?” says Kasper Meisner Nielsen.
“That’s why I looked at what happens to CEOs in the five years following their dismissal. How quickly do they find a new position – and at what salary level? No one had studied that before,” he notes.
His dataset includes more than 500 CEO changes. In roughly half the cases, the board asked the CEO to step down.
“It turns out that one in two CEO changes is actually a dismissal – and that’s a relatively high proportion. Part of the explanation lies in the financial crisis. Another factor is that we tend to be more transparent about dismissals in Denmark compared to, for example, the United States. But the figures also show that boards do take action when companies underperform,” he explains.
Only a few CEOs make a comebackAccording to Kasper Meisner Nielsen, a 40 percent income loss over five years is significantly greater than what ordinary salary earners experience. For them, the average drop in income after dismissal is only around five to six percent in the years that follow.
Only a few CEOs manage to make a comeback at another listed company, and fewer than one in five regain the same or a higher salary.
“Apparently, being dismissed as a CEO leads the job market to reassess the individual’s leadership ability. As a result, they tend to be offered roles with significantly lower pay. So, dismissal sends a strong negative signal,” the CBS researcher says.
“It tells us that CEOs are expected to avoid losing their job – in other words, they have a strong incentive to create value for the company. But at the same time, they may also be encouraged to take fewer risks, in order to reduce the chance of dismissal. It’s a very fine balance.”