Executive pensions, disclosure quality, and rent extraction

We argue that vague disclosure of supplemental executive retirement plans (SERPs) may impede effective shareholder monitoring over this compensation form. Hence, CEOs with power over the board may view SERP benefits as an attractive mechanism to increase their own pay, thereby extracting rents. Our results provide empirical support of the hypothesis. Many of the variables proxying for CEO power are significant in explaining the incidence and magnitude of CEO SERP benefits. In contrast, we find little association between CEO power and cash pay, a well disclosed and monitored compensation form. The results indicate that rent extraction depends on the quality of compensation disclosure.