Essays on CEO pensions

This paper investigates the disclosure and provision of defined benefit pensions to chief executive officers (CEOs) of publicly traded corporations. It consists of two essays. The first essay examines the extent that CEO pensions are the result of managerial rent extraction and/or 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. 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\u27 ability to value pensions. The second essay examines the extent that CEOs trade pay for pension benefits. I find that $1.00 of pension benefits is associated with a $0.48 decrease in CEO pay, measured as the sum of cash compensation and equity grants. Although the tradeoff estimate is significantly different from zero, it is also significantly less than the anticipated rate of dollar for dollar, especially for more powerful CEOs. This implies that the implicit price of pension benefits decreases with the CEO\u27s power, so pooling datasets on CEOs with varying degrees of power blurs the size of the pay-pension tradeoff. Overall, the two essays show that, in general, the disclosure and provision of CEO pension benefits is consistent with optimal contracting, but some CEOs extract rent through pension benefits. This rent extraction is, nevertheless, observable and takes the form of lower tradeoffs between pay and pension benefits