Bank CEO Pay-Performance Relations and the Effects of Deregulation

John R. Ezzell · James A. Miles

207 citations0/0 files storedThe Journal of Business

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Corporate Finance and Governance Banking stability, regulation, efficiency Accounting and Organizational Management

Abstract

We test the deregulation hypothesis which posits that bank CEO compensation became more sensitive to performance as bank management became less regulated. We observe a significant increase in pay-performance sensitivities from our 1976-1981 regulation subsample to our 1982-1988 deregulation subsample. These increases in pay sensitivities after deregulation are observed for salary and bonus, stock options, and common stock holdings. We 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 suggests an FDIC moral hazard problem.

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2007Risk-taking behaviour and ownership in the banking industry: The Spanish evidence 2000The valuation effects of bank mergers 2008Executive compensation and competition in the banking and financial sectors 1997Banks' changing incentives and opportunities for risk taking 2009Complementarity in Monitoring and Bonding: More Intense Monitoring Leads to Higher Executive Compensation 2002Financial Intermediation 2012Bank stability and managerial compensation 1998The effect of changes in ownership structure on performance: Evidence from the thrift industry1We thank George Aragon, Ben Branch, Benjamin Esty (the referee), Mark Flannery, Alvin Harrell, Clifford G. Holderness, Edith Hotchkiss, Michael Jensen, Edward J. Kane, Donald May, Marcia Millon Cornett, Manju Puri, G. William Schwert (the editor), Henri Servaes, Robert Taggert, Hassan Tehranian, Thomas Vartanian, William Wilhelm, Julie Williams, and seminar participants at Boston University, the Federal Trade Commission in Washington, DC, Suffolk University, University of Massachusetts at Amherst, and Columbia University for helpful discussion of this study. Earlier versions of this paper were presented at the 1995 Annual Meetings of both the Western Finance Association and the Financial Management Association, and at the 1996 Annual Meeting of the American Finance Association.1

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