Inside debt, such as pensions and deferred compensation, constitutes a widely-used form of executive compensation, yet the the valuation and incentive effects of these instruments have been almost entirely overlooked by prior work. Our paper initiates this line of research. Among our findings are that pensions constitute a significant component of overall compensation; that CEO compensation in most firms exhibits a balance between debtand equity-based incentives, with the balance shifting systematically away from equity and toward debt as CEOs grow older; that CEOs with high debt-based incentives manage their firms conservatively to reduce default risk; and that pension plan compensation strongly influences patterns of CEO turnover and CEO cash compensation.

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