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Executive Compensation and Competition in the Banking and Financial Sectors

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  • Cuñat, Vicente
  • Guadalupe, Maria

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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4425.

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Date of creation: Jun 2004
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Handle: RePEc:cpr:ceprdp:4425

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Keywords: executive compensation; performance related pay; product market competition;

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References

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