Working Paper: NBER ID: w11907
Authors: Lucian A. Bebchuk; Robert J. Jackson Jr.
Abstract: Because public firms are not required to disclose the monetary value of pension plans in their executive pay disclosures, financial economists have generally analyzed executive pay using figures that do not include the value of such pension plans. This paper presents evidence that omitting the value of pension benefits significantly undermines the accuracy of existing estimates of executive pay, its variability, and its sensitivity to performance companies. Studying the pension arrangements of CEOs of S&P 500, we find that the CEOs' plans had a median actuarial value of $15 million; that 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%; and that 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%.
Keywords: Executive Compensation; Pension Plans; Transparency; Firm Performance
JEL Codes: D23; G32; G34; G38; J33; J44; K22; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Omitting the value of pension benefits (H55) | Undermines the accuracy of existing estimates of executive pay (J33) |
| Non-disclosure of pension values (H55) | Distorted understanding of the relationships between executive pay and performance (M12) |
| Excluding pension values (J32) | Substantial distortions in understanding the magnitude and performance sensitivity of executive pay (J33) |
| Non-transparency of pension plans (H55) | Misleading investors regarding the true compensation landscape (J33) |
| Including pension values (H55) | Increases the median percentage of salary-like payments in total compensation from 15% to 39% (J33) |