Bank CEO Salaries: The Relation Between Performance, Ownership Concentration, and CEO Tenure

We examine whether Douglas and Santerre's (1990) substitutes hypothesis obtains for bank holding companies (BHCs); i.e. whether degree of ownership concentration and salary incentives are alternative methods of aligning BHC CEO incentives with those of shareholders. Also examined is the relation between CEO salary and bonus and CEO tenure. Using a sample of 95 BHC drawn from the 1990 Forbes magazine compensation survey, we regress CEO salary and bonus against ROE, stock return, two measures of ownership concentration, and a CEO tenure variable. Our results 1) support the substitutes hypothesis as applied to BHCs, and, 2) find a negative relation between CEO salary and bonus and CEO tenure.