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Executive compensation and cash contributions to defined benefit pension plans

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  • Qiang Cheng
  • Laura Swenson

Abstract

Cash contributions to defined benefit pension (DB) plans reduce cash flows from operations without directly affecting the current year's net income. We utilize this unique setting to investigate how managerial incentives to report higher cash flows from operations, executive compensation in particular, affect contributions. Using a comprehensive dataset of DB plan contributions, we find that firms with higher chief executive officer (CEO) compensation contribute less to DB plans, consistent with managers benefiting from lower pension contributions. Results are stronger when CEO compensation is directly linked to cash flows from operations or when CEO compensation is more sensitive to cash flows from operations. We also find enhanced disclosure and more transparent reporting under the recent pension accounting regime mitigates the negative association between executive compensation and cash contributions.

Suggested Citation

  • Qiang Cheng & Laura Swenson, 2018. "Executive compensation and cash contributions to defined benefit pension plans," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(9-10), pages 1224-1259, October.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:9-10:p:1224-1259
    DOI: 10.1111/jbfa.12339
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    Cited by:

    1. Tobias Witter & Thorsten Sellhorn & Jens Müller & Vicky Kiosse, 2022. "Balance sheet smoothing," Berlin School of Economics Discussion Papers 0006, Berlin School of Economics.

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