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.