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Finance & Accounting Seminar

When Oct 25, 2010
from 01:15 PM to 02:15 PM
Where KH107, Cambridge Judge Business School
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Dr Lisa Goh (LSE) presenting.

Title: Executive Pensions and Excess Compensation

Abstract: Existing academic research in accounting, finance and corporate governance areas has largely ignored pensions as an element of the executive compensation. Measures of total executive compensation have generally omitted values of final salary pensions, sometimes including defined contribution pensions or salary supplements as part of 'other' compensation or even salary. This is due in part to inconsistent methods of disclosure between firms. In this paper, we find that excess annual pay is positively related to both the level of executive pension compensation and the change in pension compensation, suggesting that excess pay is at least partially attributable to the existence of and growth in this less visible element of compensation. We also examine the relationship between performance-sensitive bonuses, a more visible and transparent form of compensation, and  performance-insensitive executive pensions. We find that CEO pensions are negatively related to bonuses, suggesting pensions function as a substitute for performance-sensitive bonuses in the overall compensation package. Moreover, we find those CEOs with downward adjustment in their cash bonuses during the year are also rewarded with greater increases in their pensions, suggesting a time-series substitution effect.  Taken together, the results suggest that pensions play a hidden, but important role in the compensation package, and are a potential source of excess rents to executives.

Bio: Lisa Goh is a lecturer in the Department of Accounting at the London School of Economics and Political Science. She is an alumnus of the Judge Business School (MPhil, PhD) and currently a Visiting Research Associate in Accounting at JBS. Her research interests include Executive Compensation, the impact of stock option expensing on accounting information, Corporate Governance and Earnings Management. The paper is co-authored with Dr. Yong Li of King's College, London.

 

 

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