Executive pensions and the pay–performance relation—Evidence from changes to pension legislation in the UK

Damon Morris; Ian Gregory-smith; Brian G M Main; Alberto Montagnoli; Peter W. Wright

doi:10.1093/oep/gpaa050

Executive pensions and the pay–performance relation—Evidence from changes to pension legislation in the UK

Damon Morris, Ian Gregory-smith, Brian G M Main, Alberto Montagnoli, Peter W. Wright

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Abstract / Description of output

This article evaluates the role of executive pensions in the relationship between executive compensation and corporate performance. As a natural experiment, we exploit a major change to the tax-free allowances governing executive pensions. This reform affected the cost of pensions for firms whose executives had accumulated pension benefits in excess of the prescribed limit. We find a strong reaction to the reform. After 6 April 2006, many executives saw their defined benefit pension schemes replaced with risk-free cash payments. This imposition of an exogenous constraint on the contracting over CEO pay significantly decreased the relationship between executive pay and firm performance.

Original language	English
Article number	gpaa050
Pages (from-to)	1304-1323
Number of pages	20
Journal	Oxford Economic Papers
Volume	73
Issue number	3
Early online date	25 Dec 2020
DOIs	https://doi.org/10.1093/oep/gpaa050
Publication status	Published - Jul 2021

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MorrisEtalOEP2020ExecutivePensionsAndPayPerformance
This is a pre-copyedited, author-produced version of an article accepted for publication in Oxford Economic Papers following peer review. The version of record Damon Morris, Ian Gregory-Smith, Brian G M Main, Alberto Montagnoli, Peter W Wright, Executive pensions and the pay–performance relation—Evidence from changes to pension legislation in the UK, Oxford Economic Papers, , gpaa050, https://doi.org/10.1093/oep/gpaa050 is available online at: https://academic.oup.com/oep/advance-article-abstract/doi/10.1093/oep/gpaa050/6048198?redirectedFrom=fulltext.
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Executive pensions and the pay–performance relation—Evidence from changes to pension legislation in the UK

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