Executives' Compensation of European Banks - Disclosure, Sensitivity, and Their Impact on Bank Performance

The focus of the paper is on the remuneration of executives of large European banks. We describe the pay-for-performance sensitivity of the compensation and its disclosure as two dimensions of the board remuneration systems in the European countries. The results stress the importance of transparency for performance, whereas the results for the pay-for-performance- sensitivity are distorted by the fact that the total value of compensation and sensitivity cannot be deducted from annual reports. This is mainly due to the use of stock option programs and limited disclosure practices. Thus, from our results a first step to a better performance of European banks and maybe a fruitful field for European harmonization would be to define stricter disclosure rules for executive compensation.Key Words: Board compensation; European banking; Disclosure