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Executive compensation and competition in the banking and financial sectors

By Vicente Cuñat and Maria Guadalupe

Abstract

This paper studies the effect of deregulation and increased product market competition on the compensation packages that firms offer to their executives. We use a panel of US executives in the nineties and exploit the deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference-in-differences estimates of their effect on (1) total pay, (2) estimated fixed pay and performance-pay sensitivities and (3) on the sensitivity of stock option grants. Our results indicate that the deregulations substantially changed the level and structure of compensation: the variable components of pay increased, performance-pay sensitivities grew and, at the same time, the fixed component of pay fell. The overall effect on total pay was small

Topics: HF Commerce, HG Finance, HB Economic Theory
Publisher: Financial Markets Group, London School of Economics and Political Science
Year: 2007
OAI identifier: oai:eprints.lse.ac.uk:24497
Provided by: LSE Research Online

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