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CEOs often receive pensions that provide life annuities of up to 60% of their final salary plus bonus. I investigate the extent to which pensions are managerial rent extraction and/or the result of optimal contracting between CEOs and boards of directors. Specifically, I examine whether CEOs exploit limited disclosure requirements to hide and/or camouflage excess pension benefits and whether pensions are associated with CEO power and/or contracting determinants. Overall, my results provide some support for both the managerial power and optimal contracting views of pensions. Economic contracting variables, however, appear to explain pension benefit levels to a greater extent than measures of CEO power. This suggests that although pensions can be used to extract rents, this practice appears to be limited. In addition, my results suggest that pension-based rent extraction can be detected using public disclosures, implying that recent SEC changes in pension disclosure requirements are likely to have little effect on investors’ ability to value pensions.
CEOs, pensions, SEC, disclosure requirements
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All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of The Wharton School, the Pension Research Council or of any institution with which the author is affiliated. ©2007 Pension Research Council of the Wharton School of the University of Pennsylvania. All Rights Reserved.
I thank the members of my dissertation committee for their advice and guidance: Stanley Baiman, John Core, Nicholas Gonedes, Robert Holthausen, Christopher Ittner, and Olivia S. Mitchell. I also thank the following for their comments and suggestions: Patrick Beatty, Jennifer Blouin, Brian Bushee, Wayne Guay, Richard Lambert, David Larcker, Robert Verrecchia, and workshop participants at the University of Chicago, Columbia University, Emory University, Harvard University, the University of Michigan, MIT, Northwestern University, New York University, the University of Pennsylvania, the University of Rochester, the University of Southern California, and Stanford University. I gratefully acknowledge financial support from the KPMG Foundation and the Nathan Foundation. Any and all errors are my own.
Date Posted: 17 December 2019