The Role of Defined Benefit Pension Plans in Executive Compensation

49 Pages Posted: 14 Mar 2011 Last revised: 30 Jul 2014

Brian D. Cadman

University of Utah - David Eccles School of Business

Linda Vincent

Northwestern University

Date Written: July 28, 2014

Abstract

Although defined benefit pension plans constitute a significant portion of both annual compensation and firm-related wealth for many CEOs, prior studies of CEO compensation contracts generally exclude these plans from their analyses due to lack of data. Taking advantage of recently increased disclosure requirements, we analyze the role of defined benefit pension plans in these contracts. We find that firms with CEO defined benefit pension plans grant the CEO annual compensation that is larger than predicted by economic determinants. We also find that more powerful CEOs, identified by their extraordinary pension benefits, receive higher total pay in addition to the pension benefits. We find no evidence that CEO pension benefits contribute to the pay-for-performance sensitivity of the annual pay.

Keywords: Executive Compensation, Defined Benefit Pension Plans, Pay-Performance Sensitivity, CEO Power, Proxy Disclosure

JEL Classification: G31, G32, G34

Suggested Citation

Cadman, Brian D. and Vincent, Linda, The Role of Defined Benefit Pension Plans in Executive Compensation (July 28, 2014). European Accounting Review Forthcoming. Available at SSRN: https://ssrn.com/abstract=1783866 or http://dx.doi.org/10.2139/ssrn.1783866

Brian D. Cadman (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 Campus Center Drive
Salt Lake City, UT 84112
United States
801-585-9517 (Phone)

HOME PAGE: http://www.business.utah.edu/bio/briancadman

Linda Vincent

Northwestern University ( email )

2001 Sheridan Road
Accounting & Information Systems
Evanston, IL 60208
United States
847-491-2659 (Phone)

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