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2012 | OriginalPaper | Chapter

Executive Debt-Like Compensation

Authors : Divya Anantharaman, Vivian W. Fang

Published in: Corporate Governance

Publisher: Springer Berlin Heidelberg

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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.

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Title: Executive Debt-Like Compensation
Authors: Divya Anantharaman
Vivian W. Fang
Publisher: Springer Berlin Heidelberg
Book: Corporate Governance
Print ISBN: 978-3-642-31578-7

Electronic ISBN: 978-3-642-31579-4

Copyright Year: 2012
DOI: https://doi.org/10.1007/978-3-642-31579-4_6