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The Response of Commercial Banks to Compensation Reform

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  • Vafeas, Nikos
  • Waegelein, James F
  • Papamichael, Maria

Abstract

This study assesses changes in the executive compensation policy of 94 commercial banks following the SEC's expanded compensation disclosure rules and revisions in the Internal Revenue Code regarding deductibility of compensation expense. During the period from 1989-1997, commercial banks experience a significant decline in the number of insiders serving in executive compensation committees. Following compensation reform, banks seem to substitute non-cash for cash compensation, and exhibit a somewhat stronger pay-for-performance relationship. Further, board structures are statistically indistinguishable among banks that were acquired compared to surviving banks, and between banks and a sample of electric utilities. Taken together, our analysis suggests that compensation reform, rather than deregulation or corporate control, led commercial banks to change their governance structures and provides limited evidence that such changes enhanced the incentive effects of compensation contracts. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • Vafeas, Nikos & Waegelein, James F & Papamichael, Maria, 2003. "The Response of Commercial Banks to Compensation Reform," Review of Quantitative Finance and Accounting, Springer, vol. 20(4), pages 335-354, June.
  • Handle: RePEc:kap:rqfnac:v:20:y:2003:i:4:p:335-54
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    Cited by:

    1. Liang, Hsin-Yu & Chen, I-Ju & Chen, Sheng-Syan, 2016. "Does corporate governance mitigate bank diversification discount?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 129-143.
    2. Shujun Ding & Zhenyu Wu & Yuanshun Li & Chunxin Jia, 2010. "Executive compensation, supervisory board, and China’s governance reform: a legal approach perspective," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 445-471, November.
    3. Chii-Shyan Kuo & Shih-Ti Yu, 2014. "Remuneration Committee, Board Independence and Top Executive Compensation," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 7(2), pages 1-17, April.

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