Executive compensation and securitization: pre-and post-crisis

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Purpose: The purpose of this paper is to study bank executive compensation and securitization, two important strategic developments in finance that are central to the debate on the cause of the crisis.

Design/methodology/approach: We study the relationship between securitization and executive pay in a sample of US banks from 2001 to 2010, using a series of multivariate regression models to test our hypotheses.

Findings: Bank Chief Executive Officer (CEO) pay exhibits a positive pay-for-performance relationship. Since the crisis, this relationship is weakened. For banks that securitize, we find that prior to the crisis, higher securitization activity led to higher CEO compensation levels. While we do not find that securitization is related to bank CEO pay gap (the difference between CEO and the next-highest paid bank executive), we do see that bank ratings are a factor in pay gap and compensation level.

Research limitations/implications: Bank regulatory ratings influence the relationship between compensation and securitization. Also, the relationship differs pre- and post-crisis.

Originality/value: Our study is unique for several reasons. First, we look at the relationship between compensation and securitization over a time period that includes the recent financial crisis. Second, we include an analysis of pay gap. Third, we include bank regulatory ratings, which are proprietary and therefore not available for use in many banking studies.




This article is the authors' final published version in Journal of Risk Finance, Volume 15, Issue 4, August 2014, Pages 437-457.

The published version is available at https://doi.org/10.1108/JRF-05-2014-0068. Copyright © Emerald Group Publishing Limited