Preaching Water But Drinking Wine? Relative Performance Evaluation in International Banking

Dragan Ili, Sonja Pisarov and Peter S. Schmidt

Working papers from Faculty of Business and Economics - University of Basel

Abstract: Relative performance evaluation (RPE) is, at least on paper, enjoying widespread popularity in determining the level of executive compensation. Yet existing empirical evidence of RPE is decidedly mixed. Two principal explanations are held responsible for this discord. A constructional challenge arises from intricacies of identifying the correct peers. And on a simpler note, corporate commitments to RPE could be mere exercises in empty rhetoric. We address both issues and test the use of RPE in a new sample of large international non-U.S. banks. Taken as a whole, the banks in our sample show moderate evidence consistent with RPE. We report stronger evidence once we investigate the subsample of banks that disclose the use of peers in their compensation schemes. This finding lends support to the credibility and thus informational value of RPE commitments. Digging deeper, we find that RPE usage is driven by firm size and growth options.

Keywords: relative performance evaluation; executive compensation; peers; banks; disclosure (search for similar items in EconPapers)
JEL-codes: D86 G21 G3 J33 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2015/10

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