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
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