How are Bankers Paid?

70 Pages Posted: 20 Jun 2019 Last revised: 18 Feb 2020

See all articles by Benjamin Bennett

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Date Written: February 17, 2020

Abstract

We analyze compensation design in banks. Specifically, we document associations with firm characteristics, time-series trends, pay-for-performance sensitivities, performance based pay, and the sensitivity of firm-related wealth to changes in stock return and stock return volatility. We find a significant decrease in pay during the recent financial crisis and steady growth following the crisis. We find that bank CEO pay is sensitive to ROE and stock return, but not to ROA. Bank CEOs have lower delta and vega in recent years than they had prior to the financial crisis. They also have a larger portion of their pay tied to performance metrics in recent years relative to the pre-crisis period, but less pay linked to performance metrics than non-bank financial or non-financial CEOs. In terms of the level of pay, bank CEOs earn less than both non-bank financial and non-financial firm CEOs. The lower relative bank CEO pay is driven by lower salary, nonequity incentive and stock pay.

Keywords: Executive compensation, corporate governance, finance industry, TARP

JEL Classification: F34, G32, G33, G38, K42

Suggested Citation

Bennett, Benjamin and Gopalan, Radhakrishnan and Thakor, Anjan V., How are Bankers Paid? (February 17, 2020). European Corporate Governance Institute – Finance Working Paper No. 660/2020, Available at SSRN: https://ssrn.com/abstract=3404384 or http://dx.doi.org/10.2139/ssrn.3404384

Benjamin Bennett

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: https://sites.google.com/site/benjaminbennettfinance/home

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Anjan V. Thakor (Contact Author)

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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