Are managers paid for better levels of pension funding?

- Prior research finds no connection between equity-based incentives and funding of pension plans.
- A relation between total compensation and plan funding is proposed.
- CEO and CFO total compensation are related to levels of plan funding.
- Changes in CEO compensation are related to changes in plan funding.

Despite the evidence that full funding of defined benefit pension obligations is value maximizing, managerial price and volatility sensitivities (deltas and vegas) do not appear to influence funded status for all except the CFOs of plan sponsors with weak credit ratings (Anantharaman and Lee, 2014). Whether realized total compensation (as opposed to changes in the value of securities held) encourages full funding is an open question. Here we examine the empirical relation between realized managerial compensation and the extent to which plan liabilities are funded, and find that CEO pay bears a significant relation with funded status.