We find that companies dramatically raise their incumbent executives’ pay, especially
equity-based pay, after losing executives to other firms. The pay raise is larger when
incumbent executives have greater employment mobility in the labor market, when
companies lose senior executives, and when job-hopping executives receive favorable job
offers in their new firms. A company's subsequent pay raise to incumbent executives after
losing an executive diminishes its deficiency in executive compensation relative to its
industry peer firms, and is effective at retaining its incumbent executives. Overall, our
evidence suggests that executive job-hopping activity has significant effects on firms’
compensation policies.