Journal of Law, Finance, and Accounting > Vol 2 > Issue 1

Provision of Management Incentives in Bankrupt Firms

Vidhan K. Goyal, The Hong Kong University of Science and Technology, Hong Kong, , Wei Wang, Queen’s University, Smith School of Business, Canada,
Suggested Citation
Vidhan K. Goyal and Wei Wang (2017), "Provision of Management Incentives in Bankrupt Firms", Journal of Law, Finance, and Accounting: Vol. 2: No. 1, pp 87-123.

Publication Date: 06 Jun 2017
© 2017 V. K. Goyal and W. Wang
Key employee retention plansIncentive contractChapter 11CompensationRetention bonusesCreditor controlHuman capital


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In this article:
1. Introduction 
2. Compensation in Distressed Firms and KERPs 
3. Data Sources and Sample Description 
4. Explaining the Use of KERPs 
5. Plan Features 
6. Conclusion 
Appendix: Examples of Court Motions and Orders Approving Key Employment Retention or Incentive Plans for Firms in Chapter 11 


This paper examines the use of key employee retention and incentive plans (KERPs) in bankrupt firms. We show that KERPs are more likely in Chapter 11 firms with complex operations and claim structures, strong creditor control, and located in thicker employment markets. Newly hired turnaround specialists are more likely to be covered by KERPs than incumbent CEOs. Objectives set by incentive plans are strongly linked to the probability of emergence. Our results suggest that KERPs are an efficient contracting solution to the problem of retaining and incentivizing key employees in bankruptcy.