Pensions as a Form of Executive Compensation

Journal of Business, Finance & Accounting, Vol 42, No. 9-10, pp. 1154–1187, 2015

Posted: 16 Sep 2015 Last revised: 21 Aug 2018

See all articles by Lisa Goh

Lisa Goh

Hang Seng University of Hong Kong - Department of Accountancy

Yong Li

King's College London

Multiple version iconThere are 2 versions of this paper

Date Written: September 14, 2015

Abstract

We investigate the role of pensions as an element of total executive compensation, and the relationship between pensions and performance-based compensation in executive pay. Using hand-collected data on FTSE 100 CEOs and senior executives from 2004-2011, we document that pensions function as a substitute to performance-based compensation (primarily bonuses) in both cross-sectional and time-series settings. We also examine the effect of corporate governance characteristics on executive pensions. We find that corporate governance characteristics associated with stronger board monitoring play a constraining role on the magnitude of pensions. Our evidence of substitution effects between pensions and performance-based compensation is consistent with a managerial power view of executive compensation-setting, and the use of pensions as a ‘stealth’ element of compensation. Our findings are robust to considering different types of pensions, product market competition, and cross-listing. Sub-period analysis shows that pensions decrease and substitution effects weaken following the 2008 financial crisis. Moreover, we find no evidence that the use of compensation consultants with potential conflicts of interest is associated with higher pensions. Overall, our study contributes to a greater understanding of the role of pensions in executive compensation, and shows the importance of including pensions in analysis of executive compensation.

Keywords: Pensions, Executive Compensation, Performance-based Compensation, Corporate Governance, Managerial Power

JEL Classification: J30, J33, M52

Suggested Citation

Goh, Lisa and Li, Yong, Pensions as a Form of Executive Compensation (September 14, 2015). Journal of Business, Finance & Accounting, Vol 42, No. 9-10, pp. 1154–1187, 2015, Available at SSRN: https://ssrn.com/abstract=2660048

Lisa Goh (Contact Author)

Hang Seng University of Hong Kong - Department of Accountancy ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China

Yong Li

King's College London ( email )

150 Stamford Street
London, SE1 9NN
United Kingdom

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