Asymmetric treatment of reported pension expense and income amounts in CEO cash compensation calculations

Asymmetric treatment of reported pension expense and income amounts in CEO cash compensation... We provide evidence that CEO cash compensation is relatively less sensitive to pension expense than pension income, suggesting that compensation committees shield CEO cash compensation from pension expense amounts. We also provide evidence that managers use relatively higher expected rate of return estimates when reporting pension income, suggesting that managers select income-increasing accounting estimates in response to compensation committees’ greater emphasis on pension income in CEO cash compensation determinations. Pension cost amounts represent a unique setting to examine such behavior as their effect on CEO cash compensation can be detrimental or beneficial, but arise from the same underlying economic activity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Asymmetric treatment of reported pension expense and income amounts in CEO cash compensation calculations

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Publisher
Elsevier
Copyright
Copyright © 2006 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2005.12.002
Publisher site
See Article on Publisher Site

Abstract

We provide evidence that CEO cash compensation is relatively less sensitive to pension expense than pension income, suggesting that compensation committees shield CEO cash compensation from pension expense amounts. We also provide evidence that managers use relatively higher expected rate of return estimates when reporting pension income, suggesting that managers select income-increasing accounting estimates in response to compensation committees’ greater emphasis on pension income in CEO cash compensation determinations. Pension cost amounts represent a unique setting to examine such behavior as their effect on CEO cash compensation can be detrimental or beneficial, but arise from the same underlying economic activity.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 2006

References

  • Empirical research on accounting choice
    Fields, T.D.; Lys, T.Z.; Vincent, L.
  • Insider trading, ownership structure and the market assessment of corporate sell-offs
    Hirschey, M.; Zaima, J.K.
  • Pay for performance? Government regulation and the structure of compensation contracts
    Perry, T.; Zenner, M.

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