Stealth Compensation Via Retirement Benefits
Lucian A. Bebchuk
Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Jesse M. Fried
Harvard Law School
Berkeley Business Law Journal, Vol. 1, pp. 291-326, 2004
Harvard Law and Economics Discussion Paper No. 487
UC Berkeley Public Law Research Paper No. 583861
This Article analyzes an important form of stealth compensation provided to managers of public companies. We show how boards have been able to camouflage large amounts of executive compensation through the use of retirement benefits and payments. Our study illustrates the significant role that camouflage and stealth compensation play in the design of compensation arrangements. It also highlights the importance of having information about compensation arrangements not only publicly available but also communicated in a way that is transparent and accessible to outsiders.
To improve the transparency of executives' retirement payments and benefits, we propose several changes in current disclosure requirements. Among other things, firms should be required to report to investors each year the dollar value of all the retirement benefits to which their executives become entitled. For example, firms should disclose to investors the annual buildup in the actuarial value of executives' retirement plans, as well as the tax savings reaped by executives at the company's expense through the use of deferred compensation arrangements. Firms should also disclose to investors each year the present value of all the retirement benefits their top executives have accumulated.
Number of Pages in PDF File: 34
Keywords: Executive compensation, pay for performance, agency costs, rent extraction, stealth compensation, camouflage, retirement benefits, deferred compensation, executive pensions, perks
JEL Classification: D23, G32, G34, G38, J33, J44, K22, M14, M41, M45Accepted Paper Series
Date posted: September 2, 2004 ; Last revised: April 29, 2009
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