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Executive Compensation and Competition in the Banking and Financial Sectors

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  • Cuñat, Vicente

    (London School of Economics)

  • Guadalupe, Maria

    (INSEAD)

Abstract

This paper studies the effect of product market competition on the compensation packages that firms offer to their executives and in particular its impact on the sensitivity of pay to performance. To measure the effect of competition we use two different identification strategies on a panel of US executives. We exploit two deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference in differences estimates of the effect of competition on estimated performance-pay sensitivities and on the sensitivity of stock option grants. Our results indicate that a higher level of product market competition increases the performance pay sensitivity of executive compensation schemes.

Suggested Citation

  • Cuñat, Vicente & Guadalupe, Maria, 2004. "Executive Compensation and Competition in the Banking and Financial Sectors," IZA Discussion Papers 1123, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1123
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    More about this item

    Keywords

    product market competition; performance related pay; executive compensation;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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