Pay Me Later: Inside Debt and its Role in Managerial Compensation

Sundaram, Rangarajan K.; Yermack, David

doi:10.2139/ssrn.717102

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Pay Me Later: Inside Debt and its Role in Managerial Compensation

Journal of Finance, Forthcoming

59 Pages Posted: 12 May 2005

See all articles by Rangarajan K. Sundaram

Rangarajan K. Sundaram

New York University (NYU) - Department of Finance

David Yermack

New York University (NYU) - Stern School of Business

There are 3 versions of this paper

Abstract

Though widely used in executive compensation, inside debt has been almost entirely overlooked by prior work. We initiate this research by studying CEO pension arrangements in 237 large capitalization firms. Among our findings are that CEO compensation exhibits a balance between debt and equity incentives; the balance shifts systematically away from equity and toward debt as CEOs grow older; annual increases in pension entitlements represent about 10% of overall CEO compensation, and about 13% for CEOs aged 61 to 65; CEOs with high debt incentives manage their firms conservatively; and pension compensation influences patterns of CEO turnover and cash compensation.

Keywords: CEO pensions, inside debt, deferred compensation

JEL Classification: G34, J33

Suggested Citation: Suggested Citation

Sundaram, Rangarajan K. and Yermack, David, Pay Me Later: Inside Debt and its Role in Managerial Compensation. Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=717102 or http://dx.doi.org/10.2139/ssrn.717102