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Incentive features in CEO compensation in the banking industry


  • Kose John
  • Yiming Qian


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.

Suggested Citation

  • Kose John & Yiming Qian, 2003. "Incentive features in CEO compensation in the banking industry," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 109-121.
  • Handle: RePEc:fip:fednep:y:2003:i:apr:p:109-121:n:v.9no.1

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    References listed on IDEAS

    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. 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-.
    3. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    4. George P. Baker & Brian J. Hall, 1998. "CEO Incentives and Firm Size," NBER Working Papers 6868, National Bureau of Economic Research, Inc.
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