Bank CEOs Research Articles

Relative performance evaluation in CEO pay contracts: evidence from the commercial banking industry

Reviews previous research on the effects of CEO compensation structure, outlines the criteria for relative performance evaluation (RPE) and notes the paucity of empirical evidence to support it. Reports a study of the use of RPE for US bank CEO compensation 1976‐1988; and its relationship to shareholder, market and industry returns. Explains the methodology and presents the results, which suggest that CEO pay is positively linked to firm performance, but negatively linked to market/industry performance; and that performance is positively linked to CEO option wealth. Adds that both the pay/performance link and the use of RPE increased after bank deregulation in the early 1980s. Considers consistency with other research and concludes that the reduction in compensation risk offered by RPE should reduce compensation cost and thus provide a good reason for the banking industry to increase its use.

How to pay the bank CEO

Explores a US bank CEO’s ideal compensation package as a way of attracting and retaining talented individuals. States that there must be a competitive base salary but that total compensation should include car, housing, retirement and health benefits., and stock options. Notes that the federal tax package has placed a limit on eligible compensation and mentions supplemental executive retirement plans (SERPS) as a way of compensating for this. Links pay with bank performance; the CEO’s cash bonuses are tied to the bank’s performance to ensure that the CEO acts in the best interests of the bank and its shareholders. Observes fluctuations in total compensation packages due to tenure, returns on average assets, bank revenues and net incomes or profits of the bank.

FDICIA and Bank CEO Compensation: An Empirical Investigation

Banking problems in the 1980s lead to the passing of FDICIA (1991). The purpose of this legislation was to improve market and regulatory discipline on bank performance through changes in the incentive structures for bank regulators and bank stakeholders. Herein, our paper looks at the implications of FDICIA for an important set of private contracts, bank CEO compensation. While subcomponents of bank CEO compensation appear to be more closely tied to market performance after the enactment of FDICIA, total compensation package does not. Hence, our empirical results support the hypothesis that the reregulation embodied FDICIA diminishes the effectiveness of private contracts.

CEO Compensation and Performance of Commercial Banks

Much attention has recently been directed toward the relationship between the performance of firms and compensation received by their respective CEOs. We assess this relationship for commercial banks, as regulatory and other industry‐specific conditions can cause the performance‐compensation linkage in the banking industry to differ from that of industrial firms. We find that the accumulated human capital of CEOs and the bank size are positively related to the total compensation (including salary, bonus, and stock options) levels of bank CEOs. We also find a positive significant relationship between bank accounting performance proxies and CEO compensation level for all time horizons. Finally, we find a positive significant relationship between market‐based performance proxy and bank compensation.

CEO compensation and bank risk Is compensation in banking structured to promote risk taking?

This paper examines whether executive compensation in banking is structured to promote risk taking. We find that, on average, bank CEOs receive less cash compensation, are less likely to participate in a stock option plan, hold fewer stock options, and receive a smaller percentage of their total compensation in the form of options and stock than do CEOs in other industries. Cross-sectional differences in the structure of compensation contracts within banking are also examined. We find a positive and significant relation between the importance of equity-based incentives and the value of the bank's charter. This result is inconsistent with the hypothesis that compensation policies promote risk taking in banking.

Bank CEO Pay-Performance Relations and the Effects of Deregulation

The authors test the deregulation hypothesis that posits that bank CEO compensation became more sensitive to performance as bank management became less regulated. They observe a significant increase in pay-performance sensitivities from their 1976-81 regulation subsample to their 1982-88 deregulation subsample. These increases in pay sensitivities after deregulation are observed for salary and bonus, stock options, and common stock holdings. The authors observe increases in the pay-performance relation associated with high-capitalization-ratio banks, consistent with providing incentives for wealth creation while even larger increases in pay-performance sensitivity for lower capitalization-ratio banks suggest an Federal Deposit Insurance Corporation moral hazard problem. Copyright 1995 by University of Chicago Press.

Bank CEO Salaries: The Relation Between Performance, Ownership Concentration, and CEO Tenure

We examine whether Douglas and Santerre's (1990) substitutes hypothesis obtains for bank holding companies (BHCs); i.e. whether degree of ownership concentration and salary incentives are alternative methods of aligning BHC CEO incentives with those of shareholders. Also examined is the relation between CEO salary and bonus and CEO tenure. Using a sample of 95 BHC drawn from the 1990 Forbes magazine compensation survey, we regress CEO salary and bonus against ROE, stock return, two measures of ownership concentration, and a CEO tenure variable. Our results 1) support the substitutes hypothesis as applied to BHCs, and, 2) find a negative relation between CEO salary and bonus and CEO tenure.

CEO compensation and components of earnings in bank holding companies

This study analyses the relation between cash compensation of bank CEOs and accounting earnings from selected discretionary transactions. Results indicate that income from discreationary transactions accompanied by cash flow effects is reflected in the CEO compensation function. There is no reliable indication that income from discreationary transactions unaccompanied by cash flows affects compensation. The impact of discreationary earnings on the compensation function varies as a function of firms' ‘nonperforming loans’. We interpret nonperforming loans as a proxy for the firm's future capital position. There is no support for a tax-based explanation for the link between compensation and discreationary earnings.

Path Analysis of the Relationship between Competitive Strategy, Information Technology, and Financial Performance

:This study evaluates the impact of competitive strategy on information technology (it) and of it on organizational performance. In addition, the research model incorporates indirect performance effects from strategy and it alignment. Data is drawn from the survey responses of 127 banks and interviews with 68 bank CEOs. Path analysis separates direct, indirect, and spurious effects. Interview data support the quantitative analysis. The results lend statistical support to the strategy–it relationship described in case studies, and in addition, provide an explanation for inconsistent findings in previous it performance research.

The interstate banking revolution: benefits, risks, and tradeoffs for bankers and consumers

Preface The Scope and Thrust of American Interstate Banking Causes of the Interstate Banking Movement The History of Full-Service Interstate Banking in the United States Research Evidence on the Benefits and Costs of Interstate Banking Public Policy Issues Raised by the Expansion of Banking Across State Lines Entering New Interstate Markets: How Do Bankers Decide Which States to Enter? Methods for Analyzing and Selecting Banks for Interstate Acquisitions: How Do Bankers Choose Their Target Firms? Overcoming the Key Management Problems of Interstate Banking Interstate Goals and Outcomes: What Bank CEOs See As Their Problems and Accomplishments from Interstate Expansion Guideposts for Public Policy and the Management of Interstate Banking Firms Appendices :Interstate Banking Bibliography Index