How (if any) Uniform Corporate Governance Measures Matter for Executive Compensation Practice at Closely-Held Banks

Abstract

The aim of this paper is to examine the executive compensation practices in closely-held financial institutions where the corporate governance conflict lies between the blockholder on one hand and minority shareholders and depositors on the other. We study the determinants of the level of bank's executive compensation based on the example of Poland. In particular, we investigate the impact of corporate governance measures. We find that that most of the corporate governance measures are related to the level of executives’ compensation, among them board independence and ownership concentration. Compensation committee as a new structure of bank governance in Poland, do not play an important role in setting executive compensation in banks. We show that origin of the bank's parent company matters as banks tend to rely on the corporate governance standards from the home country of the financial conglomerate. Surprisingly, the presence of private pensions among minority investors does not contribute to curbing executives’ pay. Our findings also reveal that the executive’s characteristics determine to a large extent the executive pay at banks. The results show that the impact of some executive characteristics are stronger than any board characteristics what calls for improvement the internal corporate governance practices.