Premise(s)

• The current pandemic has put lots of strain on family relationships leading to divorce, and CEOs are not immune, either. [maybe even more so, as the pressure may be unbearable]

• CEO divorce is far from just the CEO’s adventure, the company, shareholders and the Board are in this boat, too.

Observable Problems

Post-Divorce CEOs are More Risk Averse

• Major events (vacations, protracted illness or death in the family) for CEOs have impact on their productivity and company performance.

• But divorce, due to the sudden substantial loss in wealth, is unique.

• CEOs know they will get poorer —> their wealth is linked to long-term incentives —> they become more risk averse to play it safe for themselves.

• The stock options become a larger portion of their post-divorce portfolio —> need to derisk.

• Less exploiting market fast-changing market opportunities.

Post-Divorce CEOs Earn … MORE

• Compared to non-divorced CEOs, 1 year after the start of divorce CEOs get:

o   $150k increase in salary

o   $260k increase in bonus

o   $450k increase in restricted stock grants

o   $1.2m increase in stock options grants.

• Higher cash/bonus compensation allows the CEO to diversify past the stock in the company and take MORE risks for the company. It’s a risk-taking incentive.

Closing Notes

• There’s no proof the company performance declines after the CEO’s divorce.

• But the Boards should recognize the case and incentivize the CEO to take more risks.

link