These ‘shocks’ contribute to executive turnover

Executive turnover in the wake of disruption depends on a few key factors, research finds.

June 3, 2019 | Original article
Austin Fitzgerald-Missouri | futurity
~3 mins

female executive reads paper by lamp

New research indicates the disruptive events that contribute to top executives leaving companies.

Called “shocks,” these employment-related events may be threats to a company’s reputation (such as lawsuits against the firm) or changes in the relationships an executive has at the company (such as CEO succession or departure of other top executives).

In the study, each type of shock significantly increased the likelihood of an executive’s departure. For businesses experiencing turmoil, these findings could help them better respond to the needs of their employees and predict when executives are likely to leave.

In contrast to previous research on CEOs and company-wide factors that drive departures, the study sought to identify the impacts of events that affect non-CEO executives on an individual level. While both “shocks” increased the likelihood of a departure, pay level helped determine which individuals were more likely to leave.

“If we want to know why executives leave, voluntarily or involuntarily, we have to understand how people interpret and respond to disruptive events, not just companies,” says Joel Andrus, an assistant professor of management in the University of Missouri’s Trulaske College of Business. “This study provides companies with more information about why executives leave, especially after a ‘shock’ event.”

The shocks observed in the study had crucial differences in their impact depending on the executive’s level of pay. For higher-paid management, the departure of a fellow executive was less likely to cause a departure, which Andrus attributed to their elevated status among co-workers. In the case of a reputational shock, however, the effect reversed: higher pay made an unplanned exit more likely.

“Higher-paid executives are perceived as highly skilled and have an easier time finding a new job,” Andrus says. “When a company’s reputation is damaged, a person might seek to preserve their standing in the job market by finding a position at a new company. For those who are paid less, the prospect of finding employment elsewhere can be more difficult and risky.”

The study appears in the Strategic Management Journal. Coauthors are from Texas A&M University.

Source: University of Missouri

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