TY  - JOUR
AB  - Purpose The purpose of this paper is to investigate how the structure of both CEO and non-CEO executive compensation affects the overall risk of a firm. The author focuses on the interplay between CEO and non-CEO executive compensation structure.Design/methodology/approach The author uses a hand-collected pension-database that employs both OLS and two-stage least squares regressions to determine the effects of inside debt on default risk using the distance-to-default framework. The database consists of 8,965 executive-year data points from 272 firms.Findings This paper accomplishes three major objectives: first, the author presents a significant extension of Sundaram and Yermack (2007) by including non-CEO executives; the author demonstrates how the differences in inside debt between CEO and non-CEO executives are directly related to firm risk; and that funding these pensions via a Rabbi Trust eliminates most of the risk-shifting effects. Firms with the lowest compensation leverage gap between CEO and non-CEO executives were most likely to observe the agency costs associated with high executive leverage. When compensation leverage structures were substantially different, or the pension was pre-funded, these effects are neutralized.Originality/value To the best of the author’s knowledge, the first paper addresses the effects of Rabbi Trusts on risk-shifting behavior between both CEOs and non-CEO executives. Further, the author extends Sundaram and Yermack (2007) using a hand-collected database six times larger than the original paper. By focusing on the “leverage gap” between CEOs and non-CEO executives, the author presents unique evidence that underlines the risk dynamics between CEOs and their boards.
VL  - 14
IS  - 3
SN  - 1743-9132
DO  - 10.1108/IJMF-08-2017-0172
UR  - https://doi.org/10.1108/IJMF-08-2017-0172
AU  - White Reilly
PY  - 2018
Y1  - 2018/01/01
TI  - Executive pensions, compensation leverage, and firm risk
T2  - International Journal of Managerial Finance
PB  - Emerald Publishing Limited
SP  - 342
EP  - 361
Y2  - 2024/04/20
ER  -