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

Research output: Contribution to journalArticlepeer-review

Abstract

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 languageEnglish
Article numbergpaa050
Number of pages20
JournalOxford Economic Papers
Early online date25 Dec 2020
DOIs
Publication statusE-pub ahead of print - 25 Dec 2020

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