Institutional investors

Corporate bonuses and the error of EROA December 2009 Bob Collie, FIA Chief Research Strategist Under current U.S. accounting rules, corporate earnings are affected not only by the actual experience of the pension plan investments, but also by the assumptions made about long-term returns. This can mean that executives' incentives are not aligned with those of the corporation and the plan, most notably on the question of how much risk to take within the pension plan. What can be done? In this research paper, Bob Collie explains:   Weaknesses of a component of the pension earnings calculation—expected return on plan assets (EROA) How EROA can distort pension plan decisions Why compensation committees should be aware of its effects Request this research Related research Accounting for pension expense in corporate financial statements: An update Pre-empting FASB: mark-to-market pension cost accounting Capital budgeting A note about our research Our proprietary research is made available to our institutional clients, and many of these published papers are available to other institutional investors as well. If you are not a Russell client, but are an institutional investor, we welcome you to request this research piece. We only require your contact information on a short request form. For more information about our research, please contact David or Gerry:     West Coast David Rothenberg Managing Director 866-926-5934 East Coast Gerry Lillis Director 866-459-4128 Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. USI-11758			Request this research Printer friendly version of this page