We examine CEOs' risk of termination, its determinants and its effect on firm value. Using survival analysis, we find that the risk of termination increases for about thirteen years before decreasing slightly with CEO tenure; 82% of CEOs have tenure of less than thirteen years. We also find that tenure increases with performance and compensation and decreases with monitoring by the board. Changes in the risk of termination do not have a significant effect on firm value. Taken as a whole, our results are consistent with the view that corporate governance functions reasonably well for the vast majority of firms.

Luck, skill and labor markets all have empirical support as determinants of managerial compensation. We examine the relative importance of pay for luck, managerial skill and labor market opportunities in determining compensation. We measure luck as the predictable component of firm performance, measure skill using managerial fixed effects and measure labor market opportunities as the compensation of executives at matched firms. Our results imply that managerial skill is the most important determinant of managers' compensation, followed by firm size and labor market opportunities, and that luck is not an important determinant of managerial compensation.