Pay Me Later: Inside Debt and its Role in Managerial Compensation

59 Pages Posted: 12 May 2005

See all articles by Rangarajan K. Sundaram

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

David Yermack

New York University (NYU) - Stern School of Business

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Abstract

Though widely used in executive compensation, inside debt has been almost entirely overlooked by prior work. We initiate this research by studying CEO pension arrangements in 237 large capitalization firms. Among our findings are that CEO compensation exhibits a balance between debt and equity incentives; the balance shifts systematically away from equity and toward debt as CEOs grow older; annual increases in pension entitlements represent about 10% of overall CEO compensation, and about 13% for CEOs aged 61 to 65; CEOs with high debt incentives manage their firms conservatively; and pension compensation influences patterns of CEO turnover and cash compensation.

Keywords: CEO pensions, inside debt, deferred compensation

JEL Classification: G34, J33

Suggested Citation

Sundaram, Rangarajan K. and Yermack, David, Pay Me Later: Inside Debt and its Role in Managerial Compensation. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=717102 or http://dx.doi.org/10.2139/ssrn.717102

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0308 (Phone)
212-995-4233 (Fax)

David Yermack (Contact Author)

New York University (NYU) - Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY 10012-1126
United States
212-998-0357 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~dyermack

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