The Role of Defined Benefit Pension Plans in Executive Compensation
49 Pages Posted: 14 Mar 2011 Last revised: 30 Jul 2014
Date Written: July 28, 2014
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: Suggested Citation