Executive Pay and Performance: Did Bankers’ Bonuses Cause the Crisis?

34 Pages Posted: 31 Mar 2012

See all articles by Paul Gregg

Paul Gregg

University of Bath - Department of Social and Policy Sciences

Sarah Jewell

University of Reading - School of Economics

Ian Tonks

University of Bristol

Date Written: March 2012

Abstract

This paper examines the pay‐performance relationship between executive cash compensation (including bonuses) and company performance for a sample of large UK companies, focusing particularly on the financial services industry, since incentive misalignment has been blamed as one of the factors causing the global financial crisis of 2007–2008. Although we find that pay in the financial services sector is high, the cash‐plus‐bonus pay‐performance sensitivity of financial firms is not significantly higher than in other sectors. Consequently, we conclude that it unlikely that incentive structures could be held responsible for inducing bank executives to focus on short‐term results.

Suggested Citation

Gregg, Paul and Jewell, Sarah and Tonks, Ian, Executive Pay and Performance: Did Bankers’ Bonuses Cause the Crisis? (March 2012). International Review of Finance, Vol. 12, Issue 1, pp. 89-122, 2012, Available at SSRN: https://ssrn.com/abstract=2031868 or http://dx.doi.org/10.1111/j.1468-2443.2011.01136.x

Paul Gregg (Contact Author)

University of Bath - Department of Social and Policy Sciences ( email )

Claverton Down
Bath, BA7 2AY
United Kingdom

Sarah Jewell

University of Reading - School of Economics ( email )

Reading, RG6 6AA
United Kingdom

Ian Tonks

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
6
Abstract Views
1,229
PlumX Metrics