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Directors' Remuneration and Performance in Australian Banking

This paper explores the relationship between directors’ and Chief Executive Officers’ pay and performance within Australian banking, using panel data for the 1992-2005 period. Several earnings models are estimated, using different dependent variables, alternate measures of performance and different estimation techniques. The results indicate an absence of a contemporaneous relationship between directors’ pay and firm performance, and no association with prior year performance. However, there is a more distant pay-performance relationship, with total directors’ pay having a robust positive association with earnings per share lagged two years, as well as with ROE lagged two years. The other key determinants of directors’ pay in Australian banking are bank specific managerial policies, lags in the administration of pay, bank size, directors’ age and directors’ stock ownership. In contrast to total directors’ pay, the evidence confirms a strong positive and direct association between CEO remuneration and prior year bank performance. The pay-performance association is stronger and more direct for CEO remuneration than it is for total directors’ remuneration. The responsiveness of CEO pay with respect to bank performance appears to have increased over time.

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File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2006-11eco.pdf
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Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Economics Series with number 2006_11.

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Length: 34 pages
Date of creation: 29 Oct 2006
Date of revision:
Handle: RePEc:dkn:econwp:eco_2006_11
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Web page: http://www.deakin.edu.au/buslaw/aef/index.php

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  15. Chinmoy Ghosh & C. Sirmans, 2005. "On REIT CEO Compensation: Does Board Structure Matter?," The Journal of Real Estate Finance and Economics, Springer, vol. 30(4), pages 397-428, June.
  16. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
  17. Chung-Hua Shen & Yuen-Hsiang Chang, 2006. "Do Regulations Affect Banking Performance? Government Governance May Matter," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 92-105, 01.
  18. David Yermack, 2004. "Remuneration, Retention, and Reputation Incentives for Outside Directors," Journal of Finance, American Finance Association, vol. 59(5), pages 2281-2308, October.
  19. T. D. Stanley, 2001. "Wheat from Chaff: Meta-analysis as Quantitative Literature Review," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 131-150, Summer.
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