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 and Peter Wright

Oxford Economic Papers, 2021, vol. 73, issue 3, 1304-1323

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.

JEL-codes: J32 J33 M12 M52 (search for similar items in EconPapers)
Date: 2021
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