Incentive Features in CEO Compensation in the Banking Industry
13 Pages Posted: 7 Sep 2005
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: Suggested Citation