Ceo Non-Compete Agreements Job Risk And Compensation

The existence of a non-competition clause also affects the board`s discipline for the CEO`s poor performance. In the absence of a non-compete clause, the company might be reluctant to fire the CEO for poor performance, as it can cause considerable economic harm to the company by working for a competitor. However, in the event of non-competition, it is more likely that the company will fire the CEO for poor performance, given that the CEO is largely prevented from working for a competitor for a period of time. In line with this argument, we find that the CEO`s sensitivity to the company`s performance is significantly stronger when the CEO has a non-compete clause. In addition, these results will be reinforced when the enforcement of non-competition rules at the state level is stricter and there is no state-level legislation to increase the cost of firing a CEO. Unlike ordinary employees, CEOs can negotiate their employment contracts, because not only do they have greater bargaining power compared to ordinary employees, but they probably also have legal representation in their negotiations with companies. From a company`s perspective, the loss of a CEO to a competitor in any capacity can cause serious economic harm because it knows its trade secrets, key suppliers and customers, strategic plans, and strengths and weaknesses vis-à-vis its competitors. [2] Therefore, the existence of a prohibition of competition for the CEO will probably be the result of a negotiating game between the CEO and the company. In particular, it is less likely that the CEO will have a non-compete clause if his job is less secure, and it is more likely that he will have such an agreement when working for a competitor in a managerial or non-executive role, would cause greater economic harm to the company.

We find evidence that fits this hypothesis. In addition, given the limited geographical application of the non-competition rules, we highlight a strong link between the existence of a CEO non-competition clause and their application under State law. [2] The outgoing CEO is not required to work for a competitor in a CEO/Senior Manager role to cause economic harm to his former employer. This point is clearly illustrated in directv`s non-compete agreement with its CEO, which states that the CEO “may in no way own, manage, manage, operate, participate, participate in or be involved in ownership, administration, operation or control in any way, directly or indirectly (including: but not limited to, as an employee, B. Advisor, officer, director, partner, consultant or joint venture), or provide services to or on behalf of a business, business, related business or enterprise, enterprise or enterprise directly or indirectly involved in a competing activity. [1] We are also creating a state-level non-compete index, based on classifications in Garmaise (2011) and data provided by Russell Beck at Beck Reed Riden LLP. . . .