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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: [email protected])
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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

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