A Unified Analysis of Executive Pay: The Case of the Financial Sector

Finance & Accounting

Further details

This study examines executive compensation determinants in the U.S. financial services sector. Multiple theories of executive pay are discussed and tested using a relatively homogenous sample. We perform an in-depth look at the corporate governance, voting and ownership structure of the companies selected. The analysis is conducted for the financial sector as a whole and for each of the three sub-groups: commercial banks, brokerage and other non-depository institutions, and insurance companies. Variables that proxy for managerial strategic discretion and task complexity are found to best explain CEO compensation. Corporate governance, including board characteristics and ownership structure, is the second leading determinant of pay variation, while firm performance and CEO specific characteristics seem to play the least role. The pay-for-performance relation appears to be curvilinear in CEO stock ownership. Contrary to previous findings, there is no indication for entrenchment, and excess compensation is found to be associated with future performance.