Skip to main content Accessibility help
×
Home

Top executive pay in Spanish banking system

  • Idoya Ferrero-Ferrero (a1), María Ángeles Fernández-Izquierdo (a1) and María Jesús Muñoz-Torres (a1)

Abstract

This study examines consistency between compensation systems and corporate performance. The main purpose is to analyse how the performance has affected the short-term executive pay in Spanish banking system during the period 2004–2008. The main results reveal that pay-performance sensitivity is asymmetrical regarding the sign of the variation of the performance, since the pay-performance sensitivity is greater when the variation of the results is positive than when the variation of the results is negative. This finding is consistent with the managerial power theory and calls into question the role of the pay-performance incentives to align interest of executives and shareholders.

Copyright

Corresponding author

Corresponding author: ferrero@cofin.uji.es

References

Hide All
Adams, R., Mehran, H. (2003). Is corporate governance different for bank holding companies? Federal Reserve Bank of New York Economic Policy Review, 9, 123142.
Aebi, V., Sabato, G., Schmid, M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), 32133226.
Andres, P. de, Vallelado, E. (2008). Corporate governance in banking: The role of the board of directors. Journal of Banking & Finance, 32(12), 25702580.
Arellano, M., Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economics Studies, 58, 277297.
Arellano, M., Bover, S. (1995). Another look at the instrumental variable estimation of error-component models. Journal of Econometrics, 68, 2951.
Basel Committee on Banking Supervision (BCBS) (2004). Convergencia internacional de medidas y normas de capital. Basilea: Banco de Pagos Internacionales.
Barontini, R., Bozzi, E. (2011). Board compensation and ownership structure: Empirical evidence for Italian listed companies. Journal of Management and Governance, 15, 5989.
Bebchuk, L. A., Fried, J. M. (2004). Pay without performance: The unfulfilled promise of executive compensation. Cambridge, MA: Harvard University Press.
Bebchuk, L. A., Fried, J. M., Walker, D. I. (2002). Managerial power and rent extraction in the design of executive compensation. University of Chicago Law Review, 69, 751846.
Blundell, R., Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115143.
Canarella, G., Nourayi, M. M. (2008). Executive compensation and firm performance: Adjustment dynamics, non-linearity and asymmetry. Managerial and Decision Economics, 29, 293315.
CNMV (2008). Informe de Gobierno Corporativo de las entidades emisoras de valores admitidos a negociación en mercados secundarios oficiales. Ejercicio 2007. Madrid: Comisión Nacional del Mercado de Valores.
Comisión Conthe (2006). Código Unificado de Buen Gobierno, Informe del grupo especial de trabajo sobre buen gobierno de las sociedades cotizadas. Madrid: Comisión Conthe.
Conyon, M. J., Schwalbach, J. (2000). Executive compensation: Evidence from the UK and Germany. Long Range Planning, 33(4), 504526.
Core, J., Holthausen, R., Larcker, D. (1999). Corporate governance, chief executive officer, and firm performance. Journal of Financial Economics, 51, 371406.
Crespí, R., García-Cestona, M. A., Salas, V. (2004). Governance mechanisms in Spanish banks. Does ownership matter? Journal of Banking & Finance, 28(10), 23112330.
Devers, C. E., Cannella, A. A., Reilly, G. P., Yoder, M. E. (2007). Executive compensation: A multidisciplinary review of recent developments. Journal of Management, 33(6), 10161072.
Duffhues, P., Kabir, R. (2008). Is the pay-performance relationship always positive? Evidence from the Netherlands. Journal of Multinational Financial Management, 18, 4560.
Erkens, D., Hung, M., Matos, P. (2009). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. SSRN eLibrary. Retrieved from http://ssrn.com/abstract=1397685
European Commission (EC) (2009). Communication from the Commission accompanying Commission Recommendation complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies and Commission Recommendation on remuneration policies in the financial services sector. COM (2009) 211 final, Brussels, 30 April 2009.
European Commission (EC) (2010). Green paper: Corporate governance in financial institutions and remuneration policies. COM (2010) 284 final, Brussels, 2 June 2010.
European Corporate Governance Forum (2009). Statement of the European Corporate Governance Forum on Director Remuneration. 23 March 2009. Retrieved from http://ec.europa.eu/internal_market/company/docs/ecgforum/ecgf-remuneration_en.pdf.
Evans, J., Weir, C. (1995). Decision processes, monitoring, incentives and large firm performance in the UK. Management Decision, 33(6), 3238.
Fahlenbrach, R., Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of Financial Economics, 99(1), 1126.
Fama, E. F., Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 301325.
Faulkender, M., Kadyrzhanova, D., Prabhala, N., Senbet, L. (2010). Executive compensation: An overview of research on corporate practices and proposed reforms. Journal of Applied Corporate Finance, 22(1), 107118.
Galbreath, J. (2012). Are boards on board? A model of corporate board influence on sustainability performance. Journal of Management & Organization, 18(4), 445460.
García-Marco, T., Robles-Fernández, M. D. (2008). Risk-taking behaviour and ownership in the banking industry: The Spanish evidence. Journal of Economics and Business, 60(4), 332354.
Gibbons, R., Murphy, K. J. (1990). Relative performance evaluation for chief executive officers. Industrial and Labor Relations Review, 43(3), 3051.
Grifell-Tatjé, E. (2011). Profit, productivity and distribution: Differences across organizational forms – The case of Spanish banks. Socio-Economic Planning Sciences, 45(2), 7283.
Hanlon, M., Rajgopal, S., Shevlin, T. (2003). Are executive stock options associated with future earnings? Journal of Accounting & Economics, 36(1–3), 343.
Hansmann, H. (1996). The ownership of enterprise. Cambridge, MA: Harvard University Press.
Hau, H., Thum, M. (2009). Subprime crisis and board (in-)competence: Private versus public banks in Germany. Economic Policy, 24(60), 701752.
Hilb, M. (2010). Redesigning corporate governance: Lessons learnt from the global financial crisis. Journal of Management and Governance, 15, 533538.
Iannotta, G., Nocera, G., Sironi, A. (2007). Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance, 31, 21272149.
International Accounting Standards IAS 11 (2003). Construction contracts, Official Journal of the European Union, 13 October 2003, 54–183.
Jensen, M., Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225264.
Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305360.
John, K., Qian, Y. (2003). Incentive features in CEO compensation in the banking industry. Economic Policy Review, 9(1), 109121.
Kaplan, S. N., Rauh, J. (2010). Wall street and main street: What contributes to the rise in the highest incomes? Review of Financial Studies, 23(3), 10041050.
Lee, F., Lee, T., Wu, W. (2010). The relationship between human resource management practices, business strategy and firm performance: Evidence from steel industry in Taiwan. The International Journal of Human Resource Management, 21(9), 13511372.
Leone, A., Shuang, J., Zimmerman, J. L (2006). Asymmetric sensitivity of CEO cash compensation to stock returns. Journal of Accounting and Economics, 42, 167192.
Lilling, M. S. (2006). The link between CEO compensation and firm performance: Does simultaneity matter? Atlantic Economic Journal, 34, 101114.
Manzaneque, M., Merino, E., Banegas, R. (2011). Compensation levels of executive personnel in Spain: Influence of the characteristics of the board of directors and of concentration of shareholdings. Innovar, 21(40), 107126.
Minnick, K., Unal, H., Yang, L. (2011). Pay for performance? CEO compensation and acquirer returns in BHCs. Review of Financial Studies, 24(2), 439472.
Murphy, K. J. (1985). Corporate performance and managerial remuneration: An empirical analysis. Journal of Accounting and Economics, 7(1–3), 1142.
Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3, 24852563.
Novales, A. (2000). Econometría (2nd ed.). Madrid: McGraw-Hill.
Nyberg, A. J., Fulmer, I. S., Gerhart, B., Carpenter, M. A. (2010). Agency theory revisited: CEO return and shareholder interest alignment. Academy of Management Journal, 53(5), 10291049.
Perry, T., Zenner, M. (2001). Pay for performance? Government regulation and the structure of compensation contracts. Journal of Financial Economics, 62, 453488.
Royo, S. (2013). How did the Spanish financial system survive the first stage of the global crisis? Governance, 26(4), 631656.
Sagarra, M., Mar-Molinero, C., García-Cestona, M. (2013). Spanish savings banks in the credit crunch: Could distress have been predicted before the crisis? A multivariate statistical analysis. The European Journal of Finance, doi:10.1080/1351847X.2013.784208.
Sánchez-Marín, G., Baixauli-Soler, J. S., Lucas-Pérez, M. E. (2010). When much is not better? Top management compensation, board structure, and performance in Spanish firms. The International Journal of Human Resource Management, 21(15), 27782797.
Shin, T. (2013). Fair pay or power play? Pay equity, managerial power, and compensation adjustments for CEOs. Journal of Management, doi:10.1177/0149206313478186.
Shiwakoti, R. K. (2012). Comparative analysis of determinants of executive remuneration in the UK financial services sector. Accounting & Finance, 52(1), 213235.
Smallman, C., McDonald, G., Mueller, J. (2010). Prologue: Governing the corporation: Structure, process and behaviour. Journal of Management & Organization, 16, 194198.
Tien, C., Chen, C. N., Chuang, C. M. (2013). A study of CEO power, pay structure, and firm performance. Journal of Management & Organization, forthcoming.
Vander Bauwhede, H. (2009). On the relation between corporate governance compliance and operating performance. Accounting and Business Research, 39(5), 497513.
Van Essen, M., Otten, J., Carberry, E. J. (2012). Assessing managerial power theory: A meta-analytic approach to understanding the determinants of CEO compensation. Journal of Management, doi:10.1177/0149206311429378.
Windmeijer, F. (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics, 126, 2551.
Zingales, L. (1998). Corporate governance: The new Palgrave Dictionary of Economics and the Law. Editor P. Newman. London: Macmillan Reference.

Keywords

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed