Director Compensation in the Banking Industry Around the Dodd-Frank Act

2021 ◽  
pp. 2150022
Author(s):  
Wikil Kwak ◽  
Xiaoyan Cheng ◽  
Burch Kealey
Keyword(s):  
Banking Industry ◽  
Negative Impact ◽  
Director Compensation ◽  
Compensation Plans ◽  
Equity Compensation ◽  
Sarbanes Oxley ◽  
The Board Of Directors ◽  
Board Monitoring ◽  
Compensation Packages ◽  
Shed Light

Directors’ monitoring and advising activities as agents were supposed to increase after the Dodd-Frank Act in 2010. The Dodd-Frank Act significantly increases the pressure on the board of directors to be more effective agents of the stockholders even after the Sarbanes-Oxley Act (2002) became effective. Director compensation, especially incentive-based compensation, is intended to align with the interests of shareholders and motivate director behavior. This paper empirically tests how banks respond to the Dodd-Frank Act by redesigning their director compensation plans. Our findings suggest that banks recognize the need for improved board monitoring by highlighting the importance of director workload and qualifications through the design of director compensation packages in the post-Dodd-Frank Act period. We also find that the negative impact of excessive director equity compensation on firm performance was attenuated after the passage of the Dodd-Frank Act. The findings of this study shed light on the rationale of director compensation policies for banking firms.

scholarly journals Corporate governance reform within the UK banking industry and its effect on firm performance

2009 ◽  
Vol 7 (1) ◽  
pp. 456-470 ◽  
Author(s):  
Elewechi Okike ◽  
Andrew Turton
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Board Of Directors ◽  
Banking Industry ◽  
Negative Impact ◽  
Annual Reports ◽  
Governance Reform ◽  
Return On Equity ◽  
The Board Of Directors ◽  
The Uk

Using a corporate governance scorecard (Corp-Gov Score) measuring twenty-six areas of corporate governance best practices in four UK banks, this study examined whether improved levels of corporate governance led to higher levels of firm performance within the UK banking industry over the time period 1999-2006. The twenty-six measures were split into four sub-sector areas of Corp-Gov Score comprising Board of Directors, Remuneration Policies, Auditing Policies, and Transparency/Disclosure Policies. Using both correlation and regression analysis on the information extracted from the Annual Reports, the study provides evidence about the extent to which UK banks have complied with recent corporate governance reforms post Enron. The results indicate that improvements in corporate governance can enhance the performance of UK banks when measuring using Return on Equity. The biggest sub-sector driver of this improvement is in the area of the Board of Directors. Our results further indicate that large boards within UK banks can have a negative impact on firm performance, and that increases in directors’ remuneration does not lead to increased levels of firm performance. Evidence is given that corporate governance within UK banks plays an important role, but how it affects firm performance is open to debate.

scholarly journals The Impact Of Outside Director Equity Holdings On The Mix Of Outside Director Compensation

2011 ◽  
Vol 27 (2) ◽  
Author(s):  
Guy McClain
Keyword(s):  
Outside Directors ◽  
Return On Assets ◽  
Director Compensation ◽  
Compensation Plans ◽  
Negatively Associated ◽  
Equity Compensation ◽  
Outside Director ◽  
The Impact ◽  
First Time ◽  
Equity Holdings

<span>This study investigates the impact outside director equity holdings have on the determinants of the mix of equity in outside director compensation plans. The analysis, conducted over a 4 year period from 1997-2000, is based on a sample of 89 first time adopters of equity compensation. The use of first time adopters attempts to control for the fact that many of the variables in the study are endogenously determined over time. The results indicate that the mix of equity is negatively associated with outside director holding, positively associated with the market-to-book ratio (a measure of the firms investment opportunities) and negatively associated with return on assets (a measure of CEO bargaining power). These findings suggest that the negotiation that takes place between the CEO and outside directors regarding governance is not only affected by the firms wanting to match the marginal productivity of directors with the opportunities of the firm, but also with the equity holdings of the directors.</span>

Exploring relationships among ethical climate types and organizational commitment

2017 ◽  
Vol 9 (1) ◽  
pp. 20-40 ◽  
Author(s):  
Japneet Kaur
Keyword(s):  
Organizational Commitment ◽  
Employee Turnover ◽  
Ethical Climate ◽  
Banking Sector ◽  
Banking Industry ◽  
Negative Impact ◽  
Predictive Ability ◽  
Content Type ◽  
The Relationship ◽  
Three Components

Purpose Indian banking sector is facing a number of challenges, and increasing number of corporate frauds and employee turnover are among the top list. Literature reveals that gaining insights about ethical climate may provide a possible solution and relief from the challenges being faced. This paper aims to contribute to the understanding of the prevalent various ethical climate types in the Indian banking industry. Furthermore, it presents interesting results by investigating the effect of five theorized ethical climate types on organizational commitment along with its three components in the banking sector. Design/methodology/approach This empirical research encompasses a descriptive research design. Sample uses 266 respondents from four prime banks of the Indian banking industry. Findings Statistical analyses unveiled that all five conceptualized ethical climate types are prevalent in the Indian banking industry. However, the perception of employees for caring climate was the highest among all others. In contrast to the results reported by Western studies, this research reveals a strong negative impact of instrumental climate on affective commitment. Furthermore, it has been seen that instrumental climate is a significant predictor for the three components of commitment (affective, continuance and normative). However, it fails to predict the overall organizational commitment construct. Likewise, opposed to findings of Western countries, law and code, rules and independent climate types have shown significant relationship and impact on organizational commitment for Indian banking sector employees. It has been found that different commitment components are predicted by a diverse mix of climate types in India. Practical implications Findings highlight varying strength of relationship and predictive ability of different ethical climate types with commitment. This helps in elucidating that managers and top executives should focus on building an ethical work environment to warrant high-level commitment among employees. Congruence between employee, manager and organizations’ perception of ethics is a pre-requisite for maintaining a long-term relationship among the parties. This study will enable understanding the role of ethical climate in reducing corporate frauds and employee turnover. Originality/value This research addresses a significant gap in literature by exploring the relationship between ethical climate and organizational commitment. The study uses data from the Indian banking industry which contributes to expanding knowledge of the relationship in the Indian context.

scholarly journals Materialism, social stratification, and ethics: evidence from SME owners in China

2019 ◽  
Vol 25 (3) ◽  
pp. 499-517 ◽  
Author(s):  
Taoyong Su ◽  
Junzhe Ji ◽  
Qingan Huang ◽  
Lei Chen
Keyword(s):  
Social Stratification ◽  
Household Income ◽  
Negative Impact ◽  
Practical Significance ◽  
Ethical Attitudes ◽  
Content Type ◽  
Future Studies ◽  
Ethical Attitude ◽  
Attitudes Toward Money ◽  
Shed Light

PurposeThe study of business ethics has seldom shed light on small- and medium-sized enterprises (SMEs) despite their theoretical and practical significance. Drawing from strain perspective, the purpose of this paper is to address this insufficiency and investigate SME owners’ ethical attitudes toward money-related deviances.Design/methodology/approachBased on a large sample of 741 Chinese SMEs, an OLS regression analysis was employed to test associated hypotheses. The robustness of results was additionally checked.FindingsThe results suggest that for stratification variables, education level is positively related to ethical attitudes, whereas household income level is surprisingly negatively associated with ethical attitudes; for materialism facets, success and happiness exert a negative impact on ethical attitudes as hypothesized, but centrality has no associated impact.Research limitations/implicationsThis study has examined both structural and motivational sources of personal strains on the ethical attitude of SME owners, while the characteristics of these strains could be explored in the future studies.Originality/valueThis study advances and complements the dominant behavior approach that emphasizes cognitive and other psychological processes in explaining individual ethical attitudes. It is also seemingly the first study to examine the influence of three materialism facets on entrepreneurial ethical attitudes.

CEO overpayment and underpayment: executives, governance and institutions

2018 ◽  
Vol 16 (1) ◽  
pp. 38-46
Author(s):  
Michael Hitt ◽  
Katalin Takacs Haynes
Keyword(s):  
Design Methodology ◽  
Organizational Context ◽  
Future Research ◽  
Hiring Decisions ◽  
Content Type ◽  
Compensation Plans ◽  
Effective Governance ◽  
Inadequate Information ◽  
Governance Practices ◽  
The Board Of Directors

Purpose Based on the findings of Aguinis et al. (2018) that only a few executives are properly compensated, the purpose of this paper is to examine potential causes and consequences of CEO overpayment and underpayment. Ineffective compensation of the CEO represents a governance failure by the board of directors. Better understanding the reasons for such failures may help boards to correct their processes and to enact more effective governance. Boards must look beyond the normally constrained focus of agency theory to examine executive characteristics and motivation. Thus, tailoring compensation plans and governance to the executive and organizational context requires attention to a broader set of theoretical notions. Design/methodology/approach Using the Aguinis et al. (2018) work, this paper conceptually identifies and explains the causes and consequences of CEO overpayment and underpayment along with their implications for governance and future research. Findings This paper identifies potential reasons for CEO overpayment and underpayment. For example, in addition to poor hiring decisions and inadequately designed compensation plans, CEO overpayment can occur because of executive hubris and greed. Alternatively, CEO underpayment may occur because of a poorly designed plan, inadequate information about the external labor market and the executive’s interests in non-pecuniary benefits (e.g. socio-emotional wealth, altruism). Without proper monitoring and oversight by the board, firm performance commonly suffers. Originality/value This work extends our understanding of why CEOs may be overpaid (e.g. hubris, greed) and why some executives may accept underpayment (e.g. desire for non-pecuniary benefits from SEW or altruism). This paper explains the consequences of ineffective corporate governance practices that allow inefficient CEO compensation. Finally, this paper explores several contingencies that can affect the governance practices and research needed to enhance our knowledge of this important area.

scholarly journals Traditional Governance and Innovative Strategies in Italian Family SMEs: Evidence from Tuscany

2018 ◽  
Vol 11 (2) ◽  
pp. 103
Author(s):  
Mariacristina Bonti ◽  
Enrico Cori
Keyword(s):  
Governance Structure ◽  
Governance Structures ◽  
Innovative Strategies ◽  
Corporate Strategies ◽  
Italian Family ◽  
The Board Of Directors ◽  
Family Smes ◽  
The Relationship ◽  
Innovation Processes ◽  
Shed Light

Governance in family businesses is a relatively recent research topic in the field of management studies. Much research has sought to shed light on the factors that shape the relationship between governance structures and corporate strategies. Nevertheless, very little research has specifically addressed the relationships between the configuration of the Board of Directors and the firm’s willingness to carry out innovative strategies. Our study aims to shed light on the relationship between the corporate governance structures and the pace of innovation within family SMEs. Evidence from three family-owned SMEs located in Tuscany (Italy) highlights that a traditional type of governance structure can co-exist with the search for innovative strategies and that the intensity of the innovation processes may not be tied to the Board’s composition.

Book Reviews

2014 ◽  
Vol 52 (3) ◽  
pp. 861-862
Keyword(s):  
Financial Services ◽  
Default Risk ◽  
Banking Industry ◽  
Associate Professor ◽  
International Institute ◽  
Executive Pay ◽  
European Bank ◽  
European Banking ◽  
Board Monitoring ◽  
The University

Examines size, risk, and governance in European banking. Discusses bank systemic size and systemic crises; increasing in size and bank default risk—evidence from European bank mergers; the trends and composition of banking risk across Europe; the determinants of European bank exposure to systemic shocks; board monitoring, regulation, and performance in the European banking industry; executive pay and risk-taking in the European banking industry; systemic risk potential and opacity in European banks; and implications for the reregulation of European banking. Hagendorff is Martin Currie Professor in Finance and Investment at the University of Edinburgh. Keasey is Professor of Financial Services, Director of the International Institute of Banking and Financial Services, and Head of the Accounting and Finance Department at the University of Leeds. Vallascas is Associate Professor of Banking and Finance at the University of Leeds.

scholarly journals The Efficacy of Shareholder Voting: Evidence from Equity Compensation Plans

2013 ◽  
Vol 51 (5) ◽  
pp. 909-950 ◽  
Author(s):  
CHRISTOPHER S. ARMSTRONG ◽  
IAN D. GOW ◽  
DAVID F. LARCKER
Keyword(s):  
Shareholder Voting ◽  
Compensation Plans ◽  
Equity Compensation

scholarly journals Corporate governance mechanisms for publicly-traded companies

2008 ◽  
Vol 5 (4) ◽  
pp. 309-314 ◽  
Author(s):  
Sean M. Hennessey
Keyword(s):  
Corporate Governance ◽  
Board Of Directors ◽  
Best Interests ◽  
Minimal Cost ◽  
Publicly Traded ◽  
Senior Managers ◽  
Compensation Plans ◽  
Publicly Traded Companies ◽  
Corporate Governance Mechanisms ◽  
The Board Of Directors

The resolution of conflicts between shareholders and managers, at minimal cost, is the goal of corporate governance. This paper discusses four mechanisms, two internal, two external, that attempt to ensure managers act in the best interests of shareholders: 1) the board of directors, 2) management compensation plans, 3) the market, and 4) takeovers. Theoretically, these four forms of corporate governance should ensure management maximizes shareholder value. But, agency costs are real for shareholders. In practice each the mechanisms may be severely limited in their ability to protect shareholders. The best protection is an independent, credible board of directors. Without good boards, shareholders are left to the mercy of the agents. In such cases, it is very difficult, and expensive, to discipline the senior managers of a publicly-traded company

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