Bank CEO Pay-Performance Relations and the Effects of Deregulation
Posted: 25 Oct 1999
We test the deregulation hypothesis which posits that bank CEO compensation became more sensitive to performance as bank management became less regulated. We observe a significant increase in pay-performance sensitivities from our 1976-1981 regulation subsample to our 1982-1988 deregulation subsample. These increases in pay sensitivities after deregulation are observed for salary and bonus, stock options, and common stock holdings. We observe increases in the pay-performance relation associated with high capitalization ratio banks consistent with providing incentives for wealth creation while even larger increases in pay-performance sensitivity for lower-capitalization-ratio banks suggests an FDIC moral hazard problem.
JEL Classification: J33, L5
Suggested Citation: Suggested Citation