Are Wall Street CEO Compensations a Complete Nonsense? A Comparison Study with Nonfinancial Industry

In this study, I attempt to examine the differences in executive compensation packages between the financial services industry and nonfinancial industries. Using data from 2000-2005, I investigate whether there are any differences in the CEO compensation level and structure that are not explained by com-mon systematic economic determinants—namely firm size, firm performance, and CEO characteristics. In terms of compensation level, I find no signifi-cant difference between financial firms and nonfinancial firms. However, the pay-for-performance relationship of bonus is very significant and positive for financial firms, which is potential evidence to support a correctly incentivized bonus scheme; the opposite is true for nonfinancial firms. In general, financial firms place more emphasis on bonuses to compensate for better performance, whereas nonfinancial firms tend to make more use of stock options.