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Incentive features in CEO compensation in the banking industry

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Author Info

  • Kose John
  • Yiming Qian

Abstract

This article 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.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (2003)
Issue (Month): Apr ()
Pages: 109-121

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Handle: RePEc:fip:fednep:y:2003:i:apr:p:109-121:n:v.9no.1

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Related research

Keywords: Bank management ; Executives - Salaries ; Bank supervision ; Corporate governance;

References

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  1. Flannery, Mark J. & Kwan, Simon H. & Nimalendran, M., 2004. "Market evidence on the opaqueness of banking firms' assets," Journal of Financial Economics, Elsevier, vol. 71(3), pages 419-460, March.
  2. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  3. George P. Baker & Brian J. Hall, 1998. "CEO Incentives and Firm Size," NBER Working Papers 6868, National Bureau of Economic Research, Inc.
  4. Kose John & Lemma W. Senbet, 1997. "Corporate Governance and Board Effectiveness," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-045, New York University, Leonard N. Stern School of Business-.
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