Bad Company. The Indirect Effect of Bargaining Power in the Pension Plan Industry
Posted: 16 Sep 2016
Date Written: September 14, 2016
Abstract
This paper analyzes the role played by pension plan governance structure in determining the power of the investor/decision maker to bargain with the management firm and how it impacts on plan fees and plan performance. The results show that fees decrease significantly and before- and after-fee performance improves when pension plan governance structures permit full alignment of interests and allow greater capacity for the decision-makers to monitor and discipline the managers. It is also observed that companies managing funds with both types of plan, tend to take advantage of the different levels of monitoring capacity and bargaining power held by investors in each type of plan and subsidize employee plans at the cost of individual plans. These results suggest that the adoption of formulas to guarantee majority board representation for investors would be preferable to focusing exclusively on stipulating a minimum proportion of independent directors.
Keywords: Pension Plan Governance; Bargaining Power; Fees; Performance
JEL Classification: G23, G30
Suggested Citation: Suggested Citation