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Executive Compensation and Competition in the Banking and Financial Sectors

  • Vicente Cuñat

    ()

  • Maria Guadalupe

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.JEL codes: M52, L1, J31Keywords: Executive compensation; performance related pay; incentives; product market competition; deregulation.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp598.

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Date of creation: Oct 2007
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Handle: RePEc:fmg:fmgdps:dp598
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