Date of Conferral

2018

Degree

Doctor of Business Administration (D.B.A.)

School

Business Administration

Advisor

David A. Blum

Abstract

The growth rate of chief executive officers' (CEOs) compensation has dramatically outpaced average employees' pay increases. Scholars have not been able to reach a consensus on whether the financial performance of firms has a positive influence on CEOs' compensation. Also, boards of directors lack a clear understanding of the relationship between financial performance of firms and CEOs' incentive compensation in the U.S. banking industry. The purpose of this correlational study was to examine the predictive relationship between financial performance of firms (measured by return on equity [ROE] and annual revenue) and CEOs' total compensation in the U.S. banking industry. According to agency theory, which was the theoretical framework for this study, failing to understand such a relationship could cause a misalignment between CEOs' compensation and the performance of firms. Hence, the research question was, does a predictive relationship exist between ROE, annual revenues of firms, and CEOs' total compensation? Archival data from publicly traded U.S. banking firms were collected and analyzed. Multiple regression techniques were used to identify a statistically significant predictive model, F (2, 121) = 95.691, p < .000, R2 = .613. Changes in annual revenue were found to be significantly more sensitive than changes of ROE relative to the impact on changes in CEOs' total compensation. This study may contribute to positive social change by raising individuals' awareness of the importance of maintaining CEOs' equitable compensation. Additionally, compensation committees of banking firms can use the findings from this study to evaluate their compensation strategies and make necessary adjustments.

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