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We examine the impact of organized labor on the debt-like components of CEO compensation. In initial findings, we demonstrate a positive association between unionization intensity with measures of debt-like compensation intensity used in the extant literature. This finding is robust to alternative measures of union-bargaining strength and empirical approaches. Consistent with the view that managers substitute cash for accrued compensation to improve their bargaining position over labor, this result is robustly driven by the deferred component of debt-like compensation. Our results collectively suggest that unions play an important role in the use of deferred compensation. [ABSTRACT FROM AUTHOR]

Independent regulation commissions are, in the face of a judicial campaign against their independence, suffering from an internal ailment that is just as serious. These mainstays of the administrative state, including the Federal Trade Commission, National Labor Relations Board, and other important Regulators, are becoming one-person bands. Growing dominance by their chairs is occurring in tandem with a rash of associate commissioner resignations. We suspect these trends are related. The phenomenon of the disappearing associate commissioner threatens the very purpose of independent commissions. The tired has degraded commissioners' ability to marshal expertise, resist the political branches' influence, and deliberate as multimember bodies. This Article shows how chairs and chair-supervised staff have arrested control from other commissioners; how the White House, executive agencies, and Congress have encroached on commissions' turf; and how an increasingly partisan climate has turned deliberative discussions among commissioners into party-line votes. Leveraging data on 684 current and former commissioners on eleven key commissions, the Article then identifies associate commissioners' growing propensity to exit their positions early in their terms. These developments suggest that many of the perceived benefits of the independent commission form fail to be fully realized. Shorter tenures erode commissions' political insulation and collective experience and may degrade the quality of their deliberations and the signal value of dissents from commission daises. Whereas proponents of independent commissions vigorously defend the form against judicial challenges, they have failed to confront these developments that, as a functional matter, chip away at the purposes that independence is designed to serve. To address this oversight, we offer several prescriptions to reinvigorate commissions. Most notably, Congress should encourage associate commissioners to serve their full terms by granting them greater programmatic authority, agenda-setting power, and tiered or deferred compensation that rewards lengthy service. Through these and other changes, officials can help restore commissions to their previously exalted place in the administrative state. [ABSTRACT FROM AUTHOR]

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This column summarizes and analyzes the material contained in the Nonqualified Deferred Compensation Audit Technique Guide (2021 Guide) recently published by the Internal Revenue Service. The column also highlights the changes made to the predecessor guide published in 2015 and provides information about what documents and other items an employer can expect to have examined by an auditor in connection with the audit of a nonqualified plan. However, care must be exercised in the use of the 2021 Guide. It fails to incorporate a full discussion of the many requirements of Section 409A. This is a significant flaw. [ABSTRACT FROM AUTHOR]

This study utilizes agency theory to examine how Chief Executive Officers' (CEOs) compensation contracts impact marketing strategy decisions within firms. Specifically, we examine whether variations in CEOs' inside-debt to equity ratio (i.e., ratio of pension and deferred compensation to equity holdings) impact the firm's strategic emphasis. Our findings indicate that CEOs with large proportion of inside-debt (i) tend to refrain from value appropriation through reduced advertising investments, and (ii) strategically emphasize firm resources towards the value appropriation process (advertising) as opposed to value creation (R&D). [ABSTRACT FROM AUTHOR]

Using a large sample of US firms for the period 2006–2015, we investigate the relationship between asset redeployability (AR) and a Chief Executive Officer's (CEO) inside debt holdings (CID) (pension benefits and deferred compensation). We find a positive association between AR and CID. In addition, we also find that this relationship is stronger in firms that are more financially constrained and during times of economic uncertainty. Collectively, these findings suggest that asset market frictions captured by AR are better determinants of liquidation value than asset tangibility. Our results are robust to an array of sensitivity/robustness tests and endogeneity concerns. [ABSTRACT FROM AUTHOR]

We develop a dynamic model where a principal contracts with an agent to operate a firm. The agent, protected by limited liability, trades privately a market portfolio to hedge market risk in his compensation. When liquidation cost of the firm is proportional to its size, the principal manages the termination risk by loading the contract with a positive market component, which alleviates termination risk in normal market conditions but makes termination more likely after negative market shocks. The optimal contract displays a dynamic mixture of absolute and relative performance evaluations and is implemented using a dynamic deferred compensation account. This paper was accepted by Agostino Capponi, finance. Funding: Y. Huang acknowledges financial support from the Shanghai Institute of International Finance and Economics and Fudan University [Gao Feng Project]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4533. [ABSTRACT FROM AUTHOR]

This study extends our understanding of CEO inside debt compensation under an agency problem perspective by considering the impact of a behavioural trait, namely CEO overconfidence. Using a sample of US firms in Standard & Poor's ExecuComp for the period 2006–2019, we find that overconfident CEOs exhibit greater inside debt incentives (i.e. incentives arising from defined‐benefit pensions and deferred compensation). This relationship is more pronounced among firms with higher CEO overconfidence‐induced agency cost of debt (e.g. financially unconstrained firms) managed by CEOs who are less able to align compensation with their own preferences (e.g. less powerful CEOs). The results are robust to endogeneity, self‐selection concerns and alternative explanations. We contribute to the inside compensation literature that deals with agency problems under overconfident CEOs, and optimal contracting and managerial power theories. [ABSTRACT FROM AUTHOR]

How much do teachers value compensation deferred for retirement (CDR)? This question is important because the vast majority of public school teachers are covered by defined benefit pension plans that "backload" a large share of compensation to retirement relative to the compensation structure in the private sector, and there is scant evidence about whether pension structures are consistent with teacher preferences for current compensation versus CDR. This study examines a unique setting in Washington State, where teachers are enrolled in a hybrid pension system that has both defined benefit and defined contribution components. We exploit the fact that teachers have choices over their defined contribution rate to infer their revealed preferences for current versus CDR. We find that teachers on average contribute 7.23% of salary income toward retirement; 62% in fact elect to contribute more than the minimally required contribution of 5%. This suggests that teachers value CDR far more than suggested by prior evidence. [ABSTRACT FROM AUTHOR]

Split-dollar life insurance is enjoying a renewed interest from applicable tax-exempt organizations (ATEOs) because ATEOs must now pay a 21 percent excise tax on compensation paid to covered employees in excess of $1 million. This may not sound like something that would affect many tax-exempt organizations, yet because of the unique way covered employees must recognize deferred-compensation income, it has greatly increased the tax-exempt organizational motivation to find alternative reward programs for high earners. Split-dollar life insurance has been presented by many practitioners as a suitable alternative. [ABSTRACT FROM AUTHOR]

Does CEO tolerance to risk affect a firm's long-run sustainability? Using CEO insider debt holding, we show that CEO's risk-aversion encourages immoral yet rational decisions of emitting more greenhouse gas thereby adversely affecting the firm's long-run sustainability. Our result is robust to several endogeneity tests including a quasi-natural experiment. Our finding also suggest that to mitigate potential adverse reactions from stakeholders, carbon emitting firms with risk-averse CEOs tend to spend more on CSR activities. Much of the heterogeneity in our results are attributed to companies with weaker governance, powerful CEOs, and operating in a competitive product market. Overall, contrary to conventional wisdom, CEO preference toward risk-aversion can often lead to unethical outcomes (environmental degradation) and especially appears to be a key determinant for firm-level carbon emissions. [ABSTRACT FROM AUTHOR]

Theoretical studies suggest that, when determining the workplace safety level, CEOs face a trade-off between ex ante safety-improving expenditures and the expected losses due to ex post injury and illness occurrences. We examine whether firms with higher CEO inside debt holdings have safer workplaces. Using establishment-level employee workplace injury and illness data, we find that CEOs' inside debt holdings are negatively associated with employee workplace injury and illness cases. This relationship is more pronounced if workers' compensation premiums are more sensitive to injury claims and for firms with more government business and less pronounced for firms with higher levels of secured debt. We provide some evidence that our main result stems from CEOs increasing safety investments. Our empirical results are shown to be robust under a batch of robustness tests and when considering potential endogeneity problems. Our findings suggest that CEOs with higher levels of inside debt holdings are more sensitive to wealth loss due to employee injury and illness, leading to a safer workplace. [ABSTRACT FROM AUTHOR]

We document that firms can effectively retain executives by granting deferred equity pay. We show this by analyzing a unique regulatory change (FAS 123-R) that prompted 723 firms to suddenly eliminate stock option vesting periods. This allowed CEOs to keep 33% more options when departing the firm, and we find that voluntary CEO departure rates subsequently rose from 5% to 21%. Our identification strategy exploits FAS 123-R's almost-random timing, which was staggered by firms' fiscal year-ends. Firms that experienced departures suffered negative stock price reactions, and responded by increasing compensation for remaining and newly hired executives. Received June 6, 2016; editorial decision October 10, 2017 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

I study managerial short-termism in a dynamic model of project development with hidden effort and imperfect observability of quality. The manager can complete the project faster by reducing quality. To preempt this behavior, the prin cipal makes payments contingent on long-term outcomes. I analyze the dynamics of the optimal contract and its implications for the level of managerial turnover. I show that optimal contracts might be stationary and entail no termination. In general, I show that the principal reduces the manager’s temptation to behave myopically by reducing the likelihood of termination and deferring compensation. The model predicts a negative relation between the rate of managerial turnover and the use of deferred compensation that is consistent with evidence of managerial compensation contracts. Received May 23, 2016; editorial decision May 27, 2017 by Editor Francesca Cornelli. [ABSTRACT FROM AUTHOR]

This study investigates the relationship between chief executive officer (CEO) inside debt holdings (pension benefits and deferred compensation) and use of supplier‐provided trade credit. We provide evidence that CEO inside debt holdings are negatively related to the use of trade credit. Our results are robust to the use of alternative regression estimation and alternative measures of key variables. We exploit the final enforcement of Section 409A of the Internal Revenue Code (IRC) as an exogenous shock to inside debt holdings. Our difference‐in‐difference regression analysis establishes a causal relationship. In addition, we provide evidence that our documented results are not driven by omitted variable bias. We also employ instrumental variable regression estimation using heteroskedasticity‐based instruments to mitigate the endogeneity concern. Our cross‐sectional analyses reveal that the relationship between CEO inside debt holdings and trade credit is more pronounced in firms with poor information environments and greater financing constraints. Overall, findings from our study suggest that CEO inside debt has important implications for the financing policy of the firm. [ABSTRACT FROM AUTHOR]