Executive debt-like compensation

Divya Anantharaman, Vivian W. Fang

Research output: Chapter in Book/Report/Conference proceedingChapter

3 Scopus citations

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.

Original languageEnglish (US)
Title of host publicationCorporate Governance
Subtitle of host publicationRecent Developments and New Trends
PublisherSpringer-Verlag Berlin Heidelberg
Pages139-156
Number of pages18
Volume9783642315794
ISBN (Electronic)9783642315794
ISBN (Print)364231578X, 9783642315787
DOIs
StatePublished - Jul 1 2012
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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