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Looking beyond the CEO: executive compensation at banks

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  • Rebecca Demsetz
  • Marc R. Saidenberg

Abstract

The literature on executive compensation at banks has proceeded largely under the assumption that a single elasticity can adequately describe the sensitivity of executive pay to firm performance, but theories of performance based pay and tournament pay suggest that this assumption may be incorrect. We test the single-elasticity assumption by comparing the components of compensation and the pay-performance relationship across banks with different characteristics and bank executives of different positions. We find that the structure of compensation varies significantly across firms, with firm size being an important explanatory firm characteristic. The structure of compensation also varies across executive positions, but only after controlling for differences across firms. These patterns translate into significant differences in pay-performance relationships across firms, with size being the distinguishing firm characteristic. Differences across executives are less robust. There is some evidence that CEO stature enhances pay-performance sensitivity at the largest banks in our sample, but the non-base pay components of CEO compensation are apparently less performance sensitive than their labels would suggest.

Suggested Citation

  • Rebecca Demsetz & Marc R. Saidenberg, 1999. "Looking beyond the CEO: executive compensation at banks," Staff Reports 68, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:68
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    References listed on IDEAS

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    Cited by:

    1. Agata Wieczorek, 2016. "Determinanty wynagrodzeń członków rad nadzorczych w bankach notowanych na Giełdzie Papierów Wartościowych w Warszawie," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 6, pages 43-68.
    2. Lin Guo & Abu Jalal & Shahriar Khaksari, 2015. "Bank executive compensation structure, risk taking and the financial crisis," Review of Quantitative Finance and Accounting, Springer, vol. 45(3), pages 609-639, October.
    3. Timothy King & Jonathan Williams, 2013. "Bank Efficiency and Executive Compensation," Working Papers 13009, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    4. Song, Keke & Wang, Jun, 2023. "When banks become shareholder activists," Journal of Banking & Finance, Elsevier, vol. 153(C).
    5. Agata Wieczorek, 2022. "The transparency of remuneration policy in financial holding companies based on the example of the UniCredit Group," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(2), pages 173-198, June.
    6. Gianni De Nicolo, 2000. "Size, charter value and risk in banking: an international perspective," International Finance Discussion Papers 689, Board of Governors of the Federal Reserve System (U.S.).

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