Effect Of Executive Compensation On Risk Taking Among Listed Commercial Banks In Kenya

Purpose: The purpose of this study was to determine the effect of executive compensation on risk taking among listed commercial banks in Kenya.Methodology:The study used an Epistemology research philosophy, causal research design was adopted whereby panel data approach was used. The target population for this study were the 11 listed banks on the NSE. Secondary Data for the year 2010 to 2015 was collected from the NSE handbook. Data collected was analyzed using descriptive statistics which included means and standard deviations. Inferential statistics such as Pearson correlation and panel regression was also used. The results were presented in form of tables, figures, charts, graphs and trend lines.Results:Based on the findings, the study concluded that there Share Ownership and risk taking are positively and insignificantly related. Regression analysis indicated that Executive Fixed Salary and risk taking were negatively and significantly related. Executive Allowances and risk taking were negatively and significantly related.Regression analysis results indicated that Executive Annual Bonuses and risk taking were negatively and significantly related. Based on the findings the study recommended that banks should pursue optimum compensation policies, which will ensure minimum cost to the bank.Policy recommendation: This study recommends that on Executive Share Ownership banks should not increase director's shares as this will have no effect on risk taking. It was also recommended that banks might want to raise their executive salary bases on their executive staff as this will automatically lead to decreased risk in banks. The study recommended that banks should entice their staff with huge allowances as this will decrease risk. The study also recommends executive annual bonus should be considered incrementally while determining executive compensation perks as it has a decreasing effect on risk among banks listed on NSE.