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Executive compensation and competition in the banking and financial sectors

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  • Cuñat, Vicente
  • Guadalupe, Maria

Abstract

This paper studies the effect of deregulation and increased product market competition on the compensation packages that firms offer to their executives. We use a panel of US executives in the nineties and exploit the deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference-in-differences estimates of their effect on (1) total pay, (2) estimated fixed pay and performance-pay sensitivities and (3) on the sensitivity of stock option grants. Our results indicate that the deregulations substantially changed the level and structure of compensation: the variable components of pay increased, performance-pay sensitivities grew and, at the same time, the fixed component of pay fell. The overall effect on total pay was small.

Suggested Citation

  • Cuñat, Vicente & Guadalupe, Maria, 2007. "Executive compensation and competition in the banking and financial sectors," LSE Research Online Documents on Economics 24497, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24497
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    More about this item

    Keywords

    executive compensation; performance related pay; incentives; product market competition; deregulation;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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