Pay Me Now (and Later): Bonus Boosts Before Pension Freezes and Executive Departures
43 Pages Posted: 5 Dec 2014 Last revised: 26 Aug 2015
Date Written: July 3, 2015
We show that large public companies in the United States change the assumptions of the benefit formulas of the defined benefits pension plans for their top executives in anticipation of plan freezes and executive retirements. In particular, on average top executives receive a boost in annual bonuses (an input of the pension benefit formula) by 15–50% one year before pension freezes and executive departures. Such boosts are not driven by firm performance or other known determinants of annual bonuses. Our findings are also robust to alternative research designs that address potential endogeneity problems. Interestingly, we do not find significant increases in equity awards, which do not affect the value of pension benefits, before pension freezes or executive departures.
Keywords: Defined benefit pension plans; SERP; Pension freeze; Executive bonuses
JEL Classification: G31; G32; G34; M40
Suggested Citation: Suggested Citation