Some Retiring CEOs Take Good Stock Prices with
Them
October 22, 2009 (PLANSPONSOR.com) - A new study
indicates that companies that use Supplemental Executive
Retirement Plans (SERPs) could see their shares suffer when
the CEO departs.
The study found that for Fortune 1000 companies in the
1997-2006 period, stock prices lagged those of peers by
8.3% over three years following the retirements of CEOs
whose SERPs were based on their performance in their last
years, Reuters reports. Professor Paul Kalyta of McGill
University in Montreal, author of the study, said the CEO
"has strong incentives to make accounting choices that
increase firm short-term income and, therefore, amplify the
value of his/her pension," leaving the shares of companies
with big CEO SERPs "temporarily overpriced."
According to Reuters, Kalyta noted that when the market
knows groundwork for change has been laid, CEO retirements
on average have little impact on long-term stock prices.
However, he found a positive correlation between the
size of CEO SERPs and the degree to which stocks of
companies that have them lag the market after the CEOs step
down.
The study covered 388 CEOs, of whom about 70% had SERPs
and 44% had SERPs contingent on performance during the
period determining the size of the CEOs' pensions.
The study is published in the current issue of The
Accounting Review, a publication of the American
Accounting Association.
Rebecca Moore
editors@plansponsor.com