Executive Pensions

33 Pages Posted: 30 Mar 2005 Last revised: 29 Apr 2009

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Robert J. Jackson, Jr.

New York University School of Law

Multiple version iconThere are 2 versions of this paper


This paper presents evidence of the extent to which omitting the value of pension benefits has undermined the accuracy of existing estimates of executive pay, its variability, and its sensitivity to performance.We study the pension arrangements of CEOs of S&P 500 companies that (1) are now serving and are near the retirement age; or (2) left their positions during 2003 and the first half of 2004. Roughly two-thirds of these CEO have a pension plan (or similar retirement arrangement), and our findings with respect to these CEOs are as follows:

· The executives' pension plans had a median actuarial value of $15 million. · The ratio of the executives' pension value to the executives' total compensation (including both equity and non-equity pay) during their service as CEO had a median value of 34%. · Including pension values increased the median percentage of the executives' total compensation composed of salary-like payments during and after their service as CEO from 15% to 39%.

In addition, the pension benefits in our sample varied considerably with respect to both their magnitude and their relationship to the executives' overall compensation. Our findings indicate that the standard omission of pension plan values by researchers and the media leads to:

· Significant underestimation of the magnitude of executive compensation; · Severe distortions in comparisons among executive pay packages; and · Significant overestimation of the extent to which executive pay is linked to performance.

Our analysis demonstrates that the SEC new disclosure rules, which require companies to make executive pensions transparent in ways supported by this paper, can be expected to reveal large amounts of performance-insensitive compensation via executive pensions.

Keywords: Executive compensation, executive retirement benefits, executive pensions, stealth compensation, camouflage, pay for performance

JEL Classification: J33, M41, M45, G38

Suggested Citation

Bebchuk, Lucian A. and Jackson, Jr., Robert J., Executive Pensions. Journal of Corporation Law, Vol. 30, No. 4, pp. 823-855, 2005, Harvard Law and Economics Discussion Paper No. 507, Available at SSRN: https://ssrn.com/abstract=694766 or http://dx.doi.org/10.2139/ssrn.694766

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert J. Jackson, Jr.

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics