Data & Research October 22, 2009

Some Retiring CEOs Take Good Stock Prices with Them

 

A new study indicates that companies that use supplemental executive retirement plans (SERPs) could see their shares suffer when the CEO departs.

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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.

Products October 22, 2009

Hand Benefits Offers Shariah Compliant CIF

Hand Benefits & Trust (HB&T), a BPAS Company, has launched a new collective investment fund (CIF) designed to meet the needs of Muslim investors within their qualified retirement plan.

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The MIZÂN All Equity Moderate Allocation Fund was launched in conjunction with Lightstone Capital Advisers, the company said in a press release. It is now accessible to all retirement service providers through the National Securities Clearing Corporation (NSCC) trading platform, with three different share classes available.

The MIZÂN Fund seeks long term capital appreciation, consistent with Islamic investment principles, by holding a portfolio of seven diversified equity styles, the announcement said. The Fund seeks to outperform the Russell 3000 Index over a three to five-year time period.

With seven sub-portfolios encompassing various equity styles, the Fund invests in a diversified portfolio of U.S. stocks. Each sub-portfolio is chosen using objective, quantitative selection rules developed by Lightstone Capital Management that are consistent with Islamic investment principles. Screens used follow generally accepted interpretations of Islamic Law, such as the Dow Jones Islamic Market Index Rulebook, which will eliminate companies such as those involved in gaming, pornography, or alcohol, as well as companies that are significantly involved in paying or receiving interest, including banks.

All of HB&T’s Collective Investment Funds are sub-advised by outside registered investment advisers (RIAs), who are responsible for the distribution of these investment vehicles within the qualified plan marketplace.

More information is at www.mizanfunds.com.

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