23 Pages Posted: 25 Jul 2008 Last revised: 3 Feb 2009
Date Written: December 2008
The theory of equalizing differences predicts that workers trade pay for benefits, but empirical confirmation of such tradeoffs is rare. This study investigates the extent to which chief executive officers (CEOs) trade pay for pension benefits. For a sample of S&P 500 CEOs, I find that an additional dollar of pension benefits is associated with a 48 cent decrease in pay. Although the tradeoff estimate is significantly different from zero, it is also significantly less than the anticipated rate of dollar for dollar, especially for CEOs with relatively more power over their boards of directors. This implies that the implicit price of pension benefits decreases with the CEO's power, so pooling datasets on CEOs with varying degrees of power blurs the size of the pay-pension tradeoff.
Keywords: Executive Compensation, Compensating Differentials, Pensions
JEL Classification: G34, J33
Suggested Citation: Suggested Citation
By Kevin Murphy