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Pay me now (and later): Pension benefit manipulation before plan freezes and executive retirement |
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| Authors: | Irina Stefanescu Yupeng Wang Kangzhen Xie Jun Yang |
| Affiliation: | 1. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551, USA;2. Massachusetts Institute of Technology, Sloan School of Management, 100 Main Street, Building E62, Cambridge, MA 02142, USA;3. Seton Hall University, Stillman School of Business, 400 South Orange Avenue, South Orange, NJ 07079, USA;4. Indiana University, Kelley School of Business, 1309 E. 10th Street, Bloomington, IN 47405, USA |
| Abstract: | Large US firms modify top executives’ compensation before pension-related events. Top executives receive one-time increases in pensionable earnings through higher annual bonuses one year before a plan freeze and one year before retirement. Firms also boost pension payouts by lowering plan discount rates when top executives are eligible to retire with lump-sum benefit distributions. Increases in executive pensions do not appear to be an attempt to improve managerial effort or retention and are more likely to occur at firms with poor corporate governance. These findings suggest that in some circumstances managers are able to extract rents through their pension plans. |
| Keywords: | Corporate governance Executive annual bonuses Defined benefit pension plans Pension freezes Executive retirement G31 G32 G34 M40 |
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