Corporate governance and executive renumeration in banking

• Main Author: Cardias Williams, Maria de Fatima
• Other Authors: Hodgkinson, Lynn ; ap Gwilym, Owain
• Published: Bangor University 2016
• Subjects: 332.1
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.704808

The thesis traces developments in executive compensation at a sample of American (US) and European banks from 1999 to 2013. Three investigative chapters examine developments in compensation arrangements in the boom period before the global financial crisis, during and following the crisis, and for cohorts of global-systemically-important-banks, EU banks, and US banks. The thesis reviews the value of banks’ human capital endowment by considering the full C-suite of executive directors in comparison to studies that focus solely on CEOs. The analysis uses a carefully constructed dataset, which contains detailed compensation data for executive directors plus information on their biographical characteristics. The dataset includes bank-level financial statements data and stock data. The first investigative research (Chapter Two) provides an answer as to which factors affect executive compensation in banking. It shows the contrast in pay between bank CEOs and other executive roles. The analysis identifies which biographical characteristics, features of corporate governance structure, and bank-related factors exert most effect on executive compensation and its constituents. The second investigative study (Chapter Three) considers the issue of pay-for-performance in banking, following claims that pay-for-performance systems had become weaker over time, and that powerful firm executives were able to extract rents, which suggests compensation contracts had become sub-optimal for shareholders. It sheds light on the extent to which executive pay growth reflects changes in bank performance. The chapter considers the design of compensation contracts and estimates the strength of pay-for-performance relationships across different pay incentives. The third study (Chapter Four) considers the behaviour of top management teams and investigates whether the size of differences in pay (pay gaps) between the CEO and other C-suite executives affects firm performance, for which the Z-score is a measure of bank stability. A shared finding of this thesis is that heterogeneity matters and not one size fits all. Results often show intertemporal variation and variation between the three cohorts of banks. Larger compensation awards, and considerably larger portfolio holdings, are common at large, complex firms with wide ranging international operations. This suggests that there are selection effects at work with the biggest and most prestigious firms using compensation packages to attract talented and ambitious individuals.