Incentive Features in CEO Compensation in the Banking Industry

13 Pages Posted: 7 Sep 2005

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Yiming Qian

University of Connecticut

Abstract

This paper examines the incentive features of top-management compensation in the banking industry. Economic theory suggests that the compensation structures for bank management should have low pay-performance sensitivity because of the high leverage of banks and the fact that banks are regulated institutions. In accordance with this school of thought, the authors find that the pay-performance sensitivity for bank CEOs is lower than it is for CEOs of manufacturing firms. This difference is attributable largely to the difference in debt ratios. The authors also find that banks' pay-performance sensitivity declines with bank size.

Keywords: bank management compensation, corporate governance, pay-performance sensitivity, rish shifting

JEL Classification: G21, G30, J33

Suggested Citation

John, Kose and Qian, Yiming, Incentive Features in CEO Compensation in the Banking Industry. Economic Policy Review, Vol. 9, No. 1, April 2003. Available at SSRN: https://ssrn.com/abstract=795564

Kose John (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Yiming Qian

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

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