Bank CEOs

Characteristics, Compensation Policies, and Impacts on Bank Performance

verfasst von: Dr. Claudia Curi, Maurizio Murgia

Verlag: Springer International Publishing

Buchreihe : SpringerBriefs in Finance

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

This book thoroughly explores the characteristics and importance of bank CEOs against the backdrop of growing awareness of the social implications of CEO behavior for the performance and stability of the financial and economic system. After an introductory section on the relevance of CEOs in the banking industry, the connections between the bank CEO labor market, contractual incentives, and compensation structures are examined. The focus then turns to empirical findings concerning the impact that bank CEO compensation has on various firm-level outcomes, such as bank performance and strategies. In addition, the relation between CEO turnover and changes in compensation policies since the financial crisis is discussed. A concluding section presents some fresh empirical evidence deriving from an up-to-date database of traits of CEOs operating in the largest European banks. For PhD students and academics, the surveys offer detailed roadmaps on the empirical research landscape and provide suggestions for future work. The writing style ensures that the content will be readily accessible to all industry practitioners.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract

In this chapter, we set the boundaries of the book, highlighting why CEOs have been important to the banking industry in the past and will continue to be important in the near future. We conclude in this chapter with a description of the book’s outline and the objectives of each chapter.

Claudia Curi, Maurizio Murgia

Chapter 2. Banks Are Special: Are Bank CEOs Alike?

Abstract

What are the distinguishing characteristics of the CEO labour market in the financial sector? How has this market evolved, particularly after the 2008 financial crisis and the subsequent regulation of CEO and bank manager pay structures? In this chapter, we discuss answers to these questions, highlighting similarities and differences between the financial and nonfinancial industries. We identify the causes and mechanisms of the strikingly high compensation levels that have been observed since the mid-1980s, focusing on topics related to the peculiarities of compensation for bank CEOs. As banks are considered special firms in an economic system, we argue that banking CEOs are alike. We then discuss the impacts of regulatory mechanisms on CEO pay schemes and the agency problems that they can cause. Conflicts between CEOs and shareholders and debtholders arise from distorted incentives embedded into CEO compensation structures, which were particularly evident in the lead-up to the 2008 financial crisis. We review the main regulatory interventions implemented in the US and EU after the financial crisis. We conclude this chapter with a description of the interconnected factors that may affect bank executive incentives.

Claudia Curi, Maurizio Murgia

Chapter 3. Theory and Stylised Facts of Bank CEO Pay Consequences

Abstract

If bank CEOs are special, as each bank is, do the characteristics of banks influence the ways that CEOs make complex and non-routine strategic decisions? Do CEOs leave their mark or have a personal style when making investment, financing and other strategic decisions? Moreover, given the incentives for risk-taking implicit in CEO remuneration contracts, how do these incentives interact with unobservable CEO characteristics? In this Chapter, we review the major theoretical and empirical findings of the literature, highlighting how different CEO characteristics (personal and acquired) contribute to performance and risk-taking. We present empirical evidence of the sensitivity of CEO pay to bank performance and risk in pre-crisis years, and the role it played in causing the recent financial crisis. We discuss contrasting findings, highlighting the debated relationship between pre-crisis CEO incentives to take risks and crisis-period bank performance. We then discuss the main regulatory interventions undertaken in response to this issue, and their suitability in light of recent banking CEO compensation models. We conclude this chapter with a description of CEO incentives in relation to strategic decisions, such as mergers and acquisitions and restructuring programs, and how these may influence bank performance and risk.

Claudia Curi, Maurizio Murgia

Chapter 4. Characteristics and Pay Packages of CEOs at the Largest European Banks: Some Empirical Evidence

Abstract

Do the personal and professional characteristics of CEOs play a role in the performance and risk-exposure of the largest European financial conglomerates? Are their compensation structures alike? In this chapter, we empirically test these relationships, highlighting the main differences with the results reported in the literature and addressing future research directions. We present descriptive statistics of our sample of financial conglomerates and related CEOs before presenting our empirical evidence. We construct two models: one where the dependent variable is Tobin’s q, as a proxy for conglomerate performance, and the other where the dependent variable is the financial conglomerate risk. Since financial conglomerates have complex and diversified businesses, we construct the model from an income and asset diversity perspective. Our first analysis shows that CEO tenure and experience in the financial industry are factors that enhance the market value of financial conglomerates, although having an older CEO might be detrimental. Moreover, while bonuses have positive effects on performance, the fixed components of CEO remuneration are value-destroying. On the one hand, professional experience typically helps a CEO to achieve higher performance; on the other, it increases a bank’s risk exposure. Tenure length, however, could act as a hedging mechanism.

Claudia Curi, Maurizio Murgia

Chapter 5. Conclusions

Abstract

This concluding chapter offers our view on the challenges that bank CEOs will have to address in the near future. The extensive transformations that will overwhelm the banking industry in the years to come will test even the most talented CEO. Those transformations will extend from accepting and investing in the revolutionary technologies that will be part of future banking business models, to design strategic decisions in a fierce and competitive financial sector and at the same time complying with an increasing difficult financial system regulatory framework. At the end, in the way CEOs are recruited, incentivised, retained and compensated will be one of most crucial decision banks have to take to succeed in a competitive, complex and integrated global financial system.

Claudia Curi, Maurizio Murgia

Titel: Bank CEOs
verfasst von: Dr. Claudia Curi
Maurizio Murgia
Verlag: Springer International Publishing
Electronic ISBN: 978-3-319-90866-3
Print ISBN: 978-3-319-90865-6
DOI: https://doi.org/10.1007/978-3-319-90866-3