The role of evaluative uncertainty in CEO pay & early dismissal
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abstract
We develop a theory of evaluative uncertainty and study its role in performance assessments of chief executive officers (CEOs). Evaluative uncertainty is a condition created by the absence of clear and unambiguous performance indicators, which makes it difficult to assess an executive's performance and thereby assign rewards - including the retention or firing of a recently appointed CEO. Specifically, our theory articulates the determinants of evaluative uncertainty and its consequences for the CEO in terms of their pay or early dismissal. Broad empirical support for our theory is shown in a sample of Fortune 1000 firms.