This study addresses ongoing debates on CEO labor market efficiency by analyzing how exogenously emerging opportunities affect a focal CEO’s compensation. More specifically, we consider whether and how a focal firm’s CEO compensation is sensitive to new demand and retention concerns, even in the face of presumed CEO labor market frictions (e.g., legal barriers and skill transferability). We also theoretically and empirically analyze potential moderators (e.g., CEO origin and education) to provide a deeper understanding of the mechanisms driving the relationship between new outside opportunities and a focal CEO’s compensation. We test our hypotheses in the context of sudden deaths of CEOs among US firms between 1997 and 2020, conceptualizing them as potential outside opportunities for industry peer CEOs. We conclude with a discussion of how our theoretical perspective and supportive findings contribute to current understanding of the determinants of CEO compensation, CEO labor market dynamics, and spillover effects.
