Executive Pay and Performance: Evidence from the U.S. Banking Industry

29 Pages Posted: 16 May 2011

See all articles by R. Glenn Hubbard

R. Glenn Hubbard

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Darius Palia

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics; Columbia University - Law School

Date Written: April 1994

Abstract

This paper examines an effect of deregulating the market for corporate control on CEO compensation in the banking industry. Given that each state's banking regulation defines the competitiveness of its corporate control market, we examine the effect of a state's interstate banking regulation on the level and structure of bank CEO compensation. Using panel data on 147 banks over the decade of the 1980s, we find evidence supporting the hypothesis that competitive corporate control markets (i.e., where interstate banking is permitted) require talented managers whose levels of compensation are higher. We also find that the compensation-performance relationship is stronger than for managers in markets where interstate banking is not permitted. Further, CEO turnover increases substantially after deregulation, as does the proportion in performance-related compensation. These results suggest strong evidence of a managerial talent market -- that is, one which matches the level and structure of compensation with the competitiveness of the banking environment.

Suggested Citation

Hubbard, Robert Glenn and Palia, Darius, Executive Pay and Performance: Evidence from the U.S. Banking Industry (April 1994). NBER Working Paper No. w4704. Available at SSRN: https://ssrn.com/abstract=1838065

Robert Glenn Hubbard (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
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HOME PAGE: http://www.gsb.columbia.edu/faculty/ghubbard

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Darius Palia

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

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Newark, NJ 07102
United States
973-353-5981 (Phone)
973-353-1233 (Fax)

Columbia University - Law School ( email )

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New York, NY 10027
United States

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