ABSTRACT
This chapter discusses the impact of target manager's compensation on their friendliness or hostility and elaborates the relationship between target management pay and size of control premium. It examines the extent to which the retention of the target CEO by the acquiring firm is associated with the magnitude of takeover premiums, with some reporting a strong negative relationship and others obtaining insignificant results. Studies relying on the compensation structure approach demonstrate that the target management hostility may be reduced principally by offering managers larger proportions of equity ownership in their firm. The analytical emphasis is placed on the monetary gains or losses in stock ownership, equity-based pay, total compensation, and golden parachute value that are incurred by target executives due to the incidence of takeover bids. The chapter shows that the equity grants made to target CEOs during merger negotiations are not significantly associated with the magnitude of acquisition premiums.
