; EXECUTIVE COMPENSATION SCHEMES IN THE BANKING INDUSTRY: A COMPARATIVE STUDY BETWEEN A DEVELOPED COUNTRY AND AN EMERGING ECONOMY
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EXECUTIVE COMPENSATION SCHEMES IN THE BANKING INDUSTRY: A COMPARATIVE STUDY BETWEEN A DEVELOPED COUNTRY AND AN EMERGING ECONOMY

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This study examined the level and structure of compensation schemes of directors (both executive and non executives) and other named officers in the banking industries of Canada and South Africa. The study found a significant relationship between the CEO compensation and the market value of the firm. In addition, the study examined the differences between the two countries, and the relationship between compensation schemes and the value of the firm. The study discovered significant differences in the compensation structures and levels between the two countries.

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     EXECUTIVE COMPENSATION SCHEMES IN THE
     BANKING INDUSTRY: A COMPARATIVE STUDY
       BETWEEN A DEVELOPED COUNTRY AND
             AN EMERGING ECONOMY

                              Nelson Waweru, York University
                              Patrice Gélinas, York University
                           Enrico Uliana, University of Cape Town

                                                ABSTRACT

        This paper examined the level and structure of compensation schemes of directors (both executive
and non executives) and other named officers in the banking industries of Canada and South Africa. We
found a significant relationship between the CEO compensation and the market value of the firm. In addition
the study examined the differences between the two countries, and the relationship between compensation
schemes and the value of the firm. We found significant differences in the compensation structures and levels
between the two countries.

                                             INTRODUCTION

         This paper examines the executive compensation schemes and practices of banks operating in Canada
(a developed country) and South Africa (an emerging economy). In both countries a relatively small number
of large banks dominate the national market, making the banking sector a unique research context and an
interesting first step in the comparison of compensation paid in each country. Using a population of eight
major publicly-traded banks in Canada and the four main banks in South Africa, we investigate the structure
and level of executive compensation, defined as the sum of salary, annual bonus, the values of executive stock
options and long term incentive plans (LTIPs). We discriminate between banks operating in Canada and those
operating in South Africa and use contingency theory of management accounting to explain the differences.
         The term developing countries has been defined in a variety of ways by different authors mainly
based on: 1) geographical location and 2) economic development. For example, Perera (1989) defines
developing countries as those countries in the so-called Third World. Third World refers to those countries
that do not belong to the Western world centered in the U.S.A, or the Eastern world with the former USSR
as a centre. Wallace (1990) defines developing countries as those in the mid-stream of development and
refers to an amorphous and heterogeneous group of countries mostly found in Africa, Asia, Latin America,
the Middle East and the Oceanic.
         South Africa is identified to represent developing countries since although classified so by the United
Nations (2001) and the World Bank (2000), it lies on the upper income bracket of such countries. South
Africa falls between both a developed and a third world country making it a good subject for examining the
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