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EXECUTIVE COMPENSATION AT U.S. COMMUNITY BANKS: AN EMPIRICAL STUDY OF THE RELATIONSHIP BETWEEN DIRECT COMPENSATION AND FINANCIAL RETURN

John S. Walker

Kutztown University of Pennsylvania, USA

 

Jonathan K. Kramer

Kutztown University of Pennsylvania

 

ABSTRACT

Executive compensation is an important and timely topic, especially in the financial services industry. In this paper we examine the relationship between CEO direct compensation and firm performance at a sample of domestic, publicly-traded community banks. We find that the pay–performance sensitivity of CEO direct compensation at the community banks in our sample is comparable to that of the banking sector as a whole. We also find that CEO direct compensation is most sensitive to changes in total return, positively tied to the generation of fundamental returns, and uncorrelated with the generation of speculative returns.

Key Words: Banking, Executive Compensation, Community Banking, Returns

JEL Code: G21