Executive Compensation and Cash Contributions to Defined Benefit Pension Plans

36 Pages Posted: 8 Nov 2018

See all articles by Qiang Cheng

Qiang Cheng

Singapore Management University

Laura Swenson

University of Wisconsin - Milwaukee

Multiple version iconThere are 2 versions of this paper

Date Written: October/November 2018


Cash contributions to defined benefit pension (DB) plans reduce cash flows from operations without directly affecting the current year's net income. We utilize this unique setting to investigate how managerial incentives to report higher cash flows from operations, executive compensation in particular, affect contributions. Using a comprehensive dataset of DB plan contributions, we find that firms with higher chief executive officer (CEO) compensation contribute less to DB plans, consistent with managers benefiting from lower pension contributions. Results are stronger when CEO compensation is directly linked to cash flows from operations or when CEO compensation is more sensitive to cash flows from operations. We also find enhanced disclosure and more transparent reporting under the recent pension accounting regime mitigates the negative association between executive compensation and cash contributions.

Keywords: defined benefit pension plan, executive compensation, pension accounting, pension contribution

Suggested Citation

Cheng, Qiang and Swenson, Laura, Executive Compensation and Cash Contributions to Defined Benefit Pension Plans (October/November 2018). Journal of Business Finance & Accounting, Vol. 45, Issue 9-10, pp. 1224-1259, 2018, Available at SSRN: https://ssrn.com/abstract=3280467 or http://dx.doi.org/10.1111/jbfa.12339

Qiang Cheng (Contact Author)

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900

Laura Swenson

University of Wisconsin - Milwaukee ( email )

Bolton Hall 802
3210 N. Maryland Ave.
Milwaukee, WI 53211
United States

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