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Executive Debt-Like Compensation

In: Corporate Governance

Author

Listed:
  • Divya Anantharaman

    (University of Minnesota)

  • Vivian W. Fang

    (University of Minnesota)

Abstract

While executive compensation in the United States is believed to consist primarily of cash- and equity-based components, a nascent literature argues that compensation accrued by executives under pension and other deferred compensation (DC) plans has debt-like payoffs, and could function as “inside debt”. Inside debt holdings are predicted to counteract the risk-taking incentives created by inside equity holdings, and align top managers closer to outside debtholders vis-à-vis equityholders. Recent empirical studies suggest that pension and DC plan balances serve the role of inside debt to some extent, and are effective at mitigating equityholder-debtholder conflicts in leveraged firms. These findings not only change our understanding of the composition of top executive compensation, but also have implications for the recent debate on reforming executive compensation to mitigate excessive risk-taking by top executives.

Suggested Citation

  • Divya Anantharaman & Vivian W. Fang, 2012. "Executive Debt-Like Compensation," Springer Books, in: Sabri Boubaker & Bang Dang Nguyen & Duc Khuong Nguyen (ed.), Corporate Governance, edition 127, pages 139-156, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-31579-4_6
    DOI: 10.1007/978-3-642-31579-4_6
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    Cited by:

    1. Dong, Gang Nathan, 2014. "Excessive financial services CEO pay and financial crisis: Evidence from calibration estimation," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 75-96.
    2. Shen, Carl Hsin-han & Zhang, Hao, 2020. "What's good for you is good for me: The effect of CEO inside debt on the cost of equity," Journal of Corporate Finance, Elsevier, vol. 64(C).

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