Incentive Compensation for Bank Directors: The Impact of Deregulation

Becher, David A.; Frye, Melissa B.; Campbell, Terry L.

doi:10.2139/ssrn.425441

Cited by 46 publications

(54 citation statements)

References 50 publications

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“…Following these arguments, low debt ratios and high free cash flows are expected to be associated with higher levels of compensation and a high likelihood of performance-based incentives (Agrawal and Mandelker 1987;Bryan et al 2006 Again, existing empirical evidence from US firms supports the two hypotheses, in particular with respect to the leverage dimension (e.g. Bryan et al 2000;Becher et al 2005). To the best of our knowledge, there is no evidence for the two-tier setting so far.…”

Section: Firm Characteristicsmentioning

confidence: 91%

Determinants of director compensation in two-tier systems: evidence from German panel data

2010

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Section: Firm Characteristicsmentioning

confidence: 91%

Determinants of director compensation in two-tier systems: evidence from German panel data

2010

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“…However, as Black, Cheffins, and Klausner (2003) point out, even the most incompetent directors in the U.S. realistically face no out-of-pocket liability due to a combination of indemnification, insurance, procedural rules, and settlement incentives. 3 For example, Adams (2000) examines director meetings and compensation, and Becher, Campbell, and Frye (2003) study outside director compensation for banks. As in Fich and Shivdasani (2005a), Becher et al find that increasing equity-based compensation for directors has positive incentive effects.…”

Section: Methodsmentioning

confidence: 99%

CEO compensation, director compensation, and firm performance: Evidence of cronyism?

Brick

Palmon

Wald

2006

Journal of Corporate Finance

633

434

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We model CEO and director compensation using firm characteristics, CEO characteristics, and governance variables. After controlling for monitoring proxies, we find a significant positive relationship between CEO and director compensation. We hypothesize that this relationship could be due to unobserved firm complexity (omitted variables), and/or to excess compensation of directors and managers. We also find evidence that excess compensation (both director and CEO) is associated with firm underperformance. We therefore conclude that the evidence is consistent with excessive compensation due to mutual back scratching or cronyism. The evidence suggests that excessive compensation has an effect on firm performance that is independent of the poor governance variables discussed by previous studies.JEL Classification: G30, G34

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“…As a result, the basic terms of these awards such as the date, the stock price when awarded, vesting requirements, or restrictions on sale are not reported in the proxy. 6 Therefore, to obtain a value for fixed-number option grants, we follow Becher et al (2005) and Brick et al (2006). We use the Black-Scholes value adjusted for dividends for CEO grants relying on ExecuComp data and then determine the per grant value for the year.…”

Section: Data and Definitions For Director Compensationmentioning

confidence: 99%

“…We control for firm performance using ROA defined as net income to total assets per ExecuComp (e.g., Becher et al, 2005). 14 We also include one-digit SIC industry dummies to control for industry effects on director compensation.…”

Section: Predicting a Firm's Market Level Of Director Compensationmentioning

confidence: 99%

“…Much of the existing empirical research on director compensation has focused on determinants of director compensation (e.g., Bryan et al, 2000;Brick et al, 2006), the relation between the firm's investment opportunities and director compensation (e.g., Linn and Park, 2005), firm responses to changes in the regulatory environment (e.g., Ryan and Wiggins, 2004;Linck et al, 2006;Becher et al, 2005), and the market reaction to the adoption of equity-based director incentive plans (e.g., Vafeas, 1999;Gerety et al, 2001;Fich and Shivdasani, 2005). Despite the expanding literature regarding director compensation, few have focused on analyzing the design and structure of outside director compensation (notable exceptions include Yermack, 2004;Adams and Ferreira, 2004).…”

Section: Introductionmentioning

confidence: 99%

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How do firms adjust director compensation?

Farrell

Friesen

Hersch

2008

Journal of Corporate Finance

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This paper examines outside director compensation for a sample of 237 Fortune 500 firms over the 1998-2004 period. We document a trend towards fixed-value equity compensation and away from cash only and fixed-number equity compensation. Adjustments to director compensation are consistent with firms targeting a market level of compensation, and firms that deviate from their market wage symmetrically adjust compensation back toward the market level. We also document the relation between changes in compensation and changes in equity values, and find that upward adjustments begin sooner than downward adjustments. When equity values rise, we find virtually no immediate offset to director compensation. However, when equity values fall, fixed-number equity compensation is adjusted in the same period (by awarding more shares or options) to offset the loss of income by almost one-third. Thus, the magnitude of adjustments towards the market wage level is symmetric, but the timing is not.

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Incentive Compensation for Bank Directors: The Impact of Deregulation

Cited by 46 publications

References 50 publications

Determinants of director compensation in two-tier systems: evidence from German panel data

Determinants of director compensation in two-tier systems: evidence from German panel data

CEO compensation, director compensation, and firm performance: Evidence of cronyism?

How do firms adjust director compensation?

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