CEO compensation and bank’s performance following bank-rescue

Purpose: This paper examines the effect of restrictions on executive pay and high CEOs’ compensation on bank performance following the “2008 UK bank rescue policy”. Design/methodology/approach: Using the difference-in-difference estimation technique we assess the relationship between executive compensation and financial performance of rescued banks relative to non-rescued banks over the period 1999–2019. Findings: Our main finding indicates that the relationship between executive compensation and financial performance declines in rescued banks relative to non-rescued banks. Further, we document that performance continues to deteriorate in rescued banks relative to non-rescued banks. Our results are robust to different estimation techniques. Originality/value: This study contributes to the literature that examines the efficacy of government bailouts during the 2008 crisis. To the best of the author’s knowledge, this study is among the first to examine the long-term implications of bank rescue and pay restrictions on executive compensation and performance post–rescue.