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

41 Pages Posted: 31 Oct 2008

See all articles by Rangarajan K. Sundaram

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

David Yermack

New York University (NYU) - Stern School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: May 2005

Abstract

Inside debt, such as pensions and deferred compensation, constitutes a widely-used form of executive compensation, yet the the valuation and incentive effects of these instruments have been almost entirely overlooked by prior work. Our paper initiates this line of research. Among our findings are that pensions constitute a significant component of overall compensation; that CEO compensation in most firms exhibits a balance between debtand equity-based incentives, with the balance shifting systematically away from equity and toward debt as CEOs grow older; that CEOs with high debt-based incentives manage their firms conservatively to reduce default risk; and that pension plan compensation strongly influences patterns of CEO turnover and CEO cash compensation.

Suggested Citation

Sundaram, Rangarajan K. and Yermack, David, Pay Me Later: Inside Debt and its Role in Managerial Compensation (May 2005). NYU Working Paper No. CLB-06-003, Available at SSRN: https://ssrn.com/abstract=1291026

Rangarajan K. Sundaram (Contact Author)

New York University (NYU) - 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)

David Yermack

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

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