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Pay Me Later: Inside Debt and its Role in Managerial Compensation

Rangarajan K. Sundaram
New York University - Department of Finance

David Yermack
New York University - Stern School of Business

Journal of Finance, Forthcoming

Abstract:
Though widely used in executive compensation, inside debt has been almost entirely overlooked by prior work. We initiate this research by studying CEO pension arrangements in 237 large capitalization firms. Among our findings are that CEO compensation exhibits a balance between debt and equity incentives; the balance shifts systematically away from equity and toward debt as CEOs grow older; annual increases in pension entitlements represent about 10% of overall CEO compensation, and about 13% for CEOs aged 61 to 65; CEOs with high debt incentives manage their firms conservatively; and pension compensation influences patterns of CEO turnover and cash compensation.

Keywords: CEO pensions, inside debt, deferred compensation

JEL Classifications: G34, J33

Accepted Paper Series

Date posted: May 12, 2005 ; Last revised: March 22, 2007

Suggested Citation

Sundaram, Rangarajan K. and Yermack, David, Pay Me Later: Inside Debt and its Role in Managerial Compensation. Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=717102 or doi:10.2139/ssrn.717102

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Contact Information

David Yermack (Contact Author) New York University - Stern School of Business ( email ) 44 West 4th Street MEC 9-56 New York, NY 10012-1126 United States 212-998-0357 (Phone) 212-995-4220 (Fax) HOME PAGE: http://www.stern.nyu.edu/~dyermack
Rangarajan K. Sundaram New York University - Department of Finance ( email ) Stern School of Business 44 West 4th Street New York, NY 10012-1126 United States 212-998-0308 (Phone) 212-995-4233 (Fax)