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Is excess compensation associated with the amount and content of compensation-related risk disclosures in bank proxy statements?

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  • James W. Bannister
  • Harry A. Newman
  • Emma Y. Peng

Abstract

We examine whether banks that paid higher levels of excess compensation prior to the financial crisis made more compensation-related risk disclosures in their proxy statements and made greater changes to their compensation practices following the financial crisis. If banks with higher excess compensation in 2006 perceive that excess compensation may be positively associated with risk-taking, then we expect, and find, that they made more risk disclosures associated with their compensation plans in the 2010 proxy statement and were more likely to take actions to reduce their plans' potential to motivate greater risk-taking. Our results are consistent with the assertion that higher excess compensation banks were more likely to find that their compensation practices had motivated higher risk taking and consequently, made greater compensation related risk disclosures and made changes to their compensation practices to reduce the potential to motivate excessive risk taking.

Suggested Citation

  • James W. Bannister & Harry A. Newman & Emma Y. Peng, 2014. "Is excess compensation associated with the amount and content of compensation-related risk disclosures in bank proxy statements?," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(3), pages 252-283.
    • Handle: RePEc:ids:injbaf:v:5:y:2014:i:3:p:252-283
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