Hostname: page-component-848d4c4894-xfwgj Total loading time: 0 Render date: 2024-07-03T13:24:26.191Z Has data issue: false hasContentIssue false
  • English
  • Français

Chief executive officers and the pay–pension tradeoff

Published online by Cambridge University Press:  26 November 2009

JOSEPH GERAKOS
JOSEPH GERAKOS
Affiliation:
University of Chicago Booth School of Business, Chicago, IL 60637 (e-mail: jgerakos@chicagobooth.edu)
Get access Rights & Permissions [Opens in a new window]

Abstract

The theory of equalizing differences predicts that workers trade pay for benefits, but empirical confirmation of such tradeoffs is rare. This study investigates the extent to which chief executive officers (CEOs) trade pay for pension benefits. For a sample of S&P 500 CEOs, I find that an additional dollar of pension benefits is associated with a 48 cent decrease in pay. Although the tradeoff estimate is significantly different from zero, it is also significantly less than the anticipated rate of dollar-for-dollar, especially for CEOs with relatively more bargaining power over their boards of directors. This implies that the implicit price of pension benefits decreases with the CEO's bargaining power, so pooling datasets on CEOs with varying degrees of power blurs the size of the pay–pension tradeoff.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 9 , Issue 2 , April 2010 , pp. 303 - 319
Copyright
Copyright © Cambridge University Press 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Baker, George P. and Hall, Brian J. (2004) CEO incentives and firm size. Journal of Labor Economics, 22(4): 767–798.CrossRefGoogle Scholar
Barth, Mary E., Beaver, William H., and Landsman, Wayne R. (1998) Relative valuation roles of equity book value and net income as a function of financial health. Journal of Accounting and Economics, 25(1): 1–34.CrossRefGoogle Scholar
Bebchuk, Lucian and Fried, Jesse (2004) Pay without Performance: The Unfulfilled Promise of Executive Compensation. Cambridge, MA: Harvard University Press.Google Scholar
Bertrand, Marianne and Mullainathan, Sendhil (2001) Are CEOs rewarded for luck? The ones without principals are. The Quarterly Journal of Economics, 116(3): 901–932.CrossRefGoogle Scholar
Brown, Charles (1980) Equalizing differences in the labor market. The Quarterly Journal of Economics, 94(1): 113–134.CrossRefGoogle Scholar
Byrd, John W. and Hickman, Kent A. (1992) Do outside directors monitor managers? Evidence from tender offer bids. Journal of Financial Economics, 32(2): 195–221.CrossRefGoogle Scholar
Core, John E., Holthausen, Robert W., and Larcker, David F. (1999) Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3): 371–406.CrossRefGoogle Scholar
Currie, Janet and Madrian, Bridgette C. (1999) Health, health insurance and the labor market. In Orley, Ashenfelter and David, Card (eds), Handbook of Labor Economics, Vol. 3. Amsterdam: Elsevier.Google Scholar
Dorsey, Stuart, Cornwell, Christopher, and Macpherson, David (1998) Pensions and Productivity. W.E. Upjohn Institute for Employment Research.CrossRefGoogle Scholar
Edmans, Alex (2008) Inside debt. Working Paper, The Wharton School, University of Pennsylvania.Google Scholar
Even, William E. and Macpherson, David A. (1990) The gender gap in pensions and wages. Review of Economics and Statistics, 72(2): 259–265.CrossRefGoogle Scholar
Gerakos, Joseph J. (2008) CEO pensions: disclosure, managerial power, and optimal contracting. Working Paper No. 2007-5, Pension Research Council.CrossRefGoogle Scholar
Gompers, Paul, Ishii, Joy, and Metrick, Andrew. (2003) Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1): 107–155.CrossRefGoogle Scholar
Gunderson, Morley, Hyatt, Douglas, and Pesando, James E. (1992) Wage–pension trade-offs in collective agreements. Industrial and Labor Relations Review, 46(1): 146–160.CrossRefGoogle Scholar
Gustman, Alan L. and Steinmeier, Thomas L. (1987) Pensions, efficiency wages, and job mobility. Working Paper No. 2426, National Bureau of Economic Research.CrossRefGoogle Scholar
Hallock, Kevin F. (1997) Reciprocally interlocking boards of directors and executive compensation. Journal of Financial and Quantitative Analysis, 32(3): 331–344.CrossRefGoogle Scholar
Inkmann, Joachim (2006) Compensating wage differentials for defined benefit and defined contribution occupational pension scheme benefits. Unpublished paper, London School of Economics and Political Science.Google Scholar
Leonard, Jonathan S. (1990) Executive pay and firm performance. Industrial & Labor Relations Review, 43(3): 13–29.CrossRefGoogle Scholar
Mitchell, Olivia S. and Pozzebon, Silvana (1987) Wages, pensions and the wage–pension tradeoff. Working paper, Cornell University.Google Scholar
Montgomery, Edward and Shaw, Kathryn. (1997) Pensions and wage premia. Economic Inquiry, 35(3): 510–522.CrossRefGoogle Scholar
Montgomery, Edward, Shaw, Kathryn, and Benedict, Mary E. (1992) Pensions and wages: an hedonic price theory approach. International Economic Review, 33(1): 111–128.CrossRefGoogle Scholar
Murphy, Kevin J. (1999) Executive compensation. In Orley, Ashenfelter and David, Card (eds), Handbook of Labor Economics, Vol. 3b. Amsterdam: Elsevier.Google Scholar
Ofek, Eli and Yermack, David L. (2000) Taking stock: equity-based compensation and the evolution of managerial ownership. Journal of Finance, 55(3): 1367–1384.CrossRefGoogle Scholar
Rosen, Sherwin H. (1986) The theory of equalizing differences. In Orley, Ashenfelter (ed.), Handbook of Labor Economics, Vol. 1. Amsterdam: Elsevier.Google Scholar
Schiller, Bradley R. and Weiss, Randall D. (1980) Pensions and wages: a test for equalizing differences. Review of Economics and Statistics, 62(4): 529–538.CrossRefGoogle Scholar
Scholes, Myron A., Wolfson, Mark A., Erickson, Merle, Maydew, Edward L., and Shevlin, Terry (2002) Taxes and Business Strategy. Upper Saddle River, NJ: Prentice-Hall.Google Scholar
Sharma, Subhash (1996) Applied Multivariate Techniques. New York, NY: John Wiley & Sons.Google Scholar
Smith, Adam (1776) An Inquiry into the Nature and Causes of the Wealth of Nations. Oxford: Clarendon Press.Google Scholar
Smith, Clifford W. and Watts, Ross L. (1992) The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32(3): 263–292.CrossRefGoogle Scholar
Smith, Robert and Ehrenberg, Ronald (1983) Estimating wage–fringe trade-offs: some data problems. In Jack, Triplett (ed.), The Measurement of Labor Cost. Chicago: The University of Chicago Press.Google Scholar
Sundaram, Rangarajan K. and Yermack, David L. (2007) Pay me later: inside debt and its role in managerial compensation. Journal of Finance, 62(4): 1551–1588.CrossRefGoogle Scholar
Yermack, David L. (1996) Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2): 185–211.CrossRefGoogle Scholar