The Impact of Sarbanes-Oxley on Bank CEO and Director Compensation

This study examines the impact of Sarbanes-Oxley on CEO compensation and director compensation for banks. The presence of pre-SOX regulation in the banking industry, particularly, FIRREA and FDICIA, suggests that SOX may affect banks differently than other industries. Specifically, this study examines the changes in the trends for CEO compensation and for director compensation for banks over time. The results indicate that compensation for directors and CEOs has changed for all firms over time, but the sign and the significance of the change varies with respect to the type of compensation. Additionally, the differences in director/CEO compensation for banks and industrial firms have also changed over time. Whether or not the changes in the gap between compensation for banks and industrials is a consequence of banks being financial firms or banks being regulated firms varies depending on the type of compensation. The results show that bank directors are paid more cash compensation, more total compensation, and less in levels but not proportions of equity-based compensation after SOX when compared to before SOX levels. Additionally, all forms of compensation are lower for banks than non-banks after SOX. Director cash, equity, and total compensation increased for all firms from before to after SOX. There is no significant change in the difference of any form of director compensation from before to after SOX. Similar to the director compensation results, the results for CEO compensation indicate that bank CEOs are paid less cash compensation, less total compensation, and less in levels of equity-based compensation and less in percent of equity after SOX. Additionally, the level of equity compensation and total compensation are lower for banks than non-banks after SOX. However, there is no difference in cash or percent equity compensation between banks and non-banks after SOX. The results suggest that the gap between bank CEO compensation and industrial CEO compensation for equity and total compensation is widening and it may be driven by the fact that banks are financial firms. The evidence also supports the notion that the widening gap between CEO compensation between banks and industrials may be driven by bank regulatio