Document Type



Many companies pay their executives using inside debt, such as pensions and deferred compensation. Though these instruments are widely used, their valuation and incentive effects for managers have been almost entirely overlooked by prior research. CEO compensation in most firms exhibits a balance between debt- and equity-based incentives, and the balance systematically shifts away from equity and toward debt as CEOs grow older. CEOs with high debt-based incentives manage their firms conservatively to reduce default risk. Pension plan compensation strongly influences patterns of CEO turnover and CEO cash compensation.

Date of Authorship for this Version

May 2005