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Chief executive officers and the pay–pension tradeoff

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  • GERAKOS, JOSEPH

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.

Suggested Citation

  • Gerakos, Joseph, 2010. "Chief executive officers and the pay–pension tradeoff," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(2), pages 303-319, April.
    • Handle: RePEc:cup:jpenef:v:9:y:2010:i:02:p:303-319_99
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    Cited by:

    1. Liu, Yixin & Mauer, David C. & Zhang, Yilei, 2014. "Firm cash holdings and CEO inside debt," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 83-100.
    2. Platanakis, Emmanouil & Sutcliffe, Charles, 2016. "Pension scheme redesign and wealth redistribution between the members and sponsor: The USS rule change in October 2011," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 14-28.
    3. Hongfei Tang, 2014. "Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act," Review of Quantitative Finance and Accounting, Springer, vol. 42(2), pages 251-292, February.
    4. Bennett, Rosalind L. & Güntay, Levent & Unal, Haluk, 2015. "Inside debt, bank default risk, and performance during the crisis," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 487-513.

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