Absence of conflict of interest.
Citation
Highlights
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The study’s objective was to examine the impact of Troubled Asset Relief Program (TARP) chief executive officer (CEO) compensation restrictions on the earnings of CEOs.
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The author conducted a nonexperimental analysis to compare CEO compensation at S&P 500 firms subject to TARP compensation restrictions and S&P 500 firms not subject to TARP compensation restrictions. The author used data from the U.S. Securities and Exchange Commission (SEC) and other publicly available financial information for S&P 500 firms from January 2007 to December 2013.
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The study found that TARP compensation restrictions had a negative effect on CEO compensation.
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The quality of causal evidence presented in this report is low because the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to TARP CEO compensation restrictions; other factors are likely to have contributed.
Intervention Examined
U.S. Department of the Treasury’s Troubled Asset Relief Program CEO compensation restrictions
Features of the Intervention
The Emergency Economic Stabilization Act was enacted in 2008 in response to the Great Recession. As part of ESSA, TARP was established to shore up the financial position of banks and other financial firms at risk of failure. As part of TARP, firms that accepted TARP funds were subject to CEO compensation restrictions while the firm had outstanding TARP obligations. The CEO compensation restrictions were implemented in 2009.
A total of 34 S&P 500 companies included in the index between 2007 and 2013 received TARP funding. Firms were mostly commercial banks, but also included some credit agencies, personal credit institutions, finance lessors, finance services, security brokers and dealers, investment advisors, insurers, and automobile manufacturers. Twenty-two of those companies were subject to CEO compensation restrictions because they had outstanding TARP obligations when the compensation restrictions were implemented in 2009.
Features of the Study
The author conducted a nonexperimental analysis. The author compared S&P 500 firms that received TARP funding to firms that never received TARP funding. The analysis also included firms that received TARP funding but were not subject to CEO compensation restrictions (because they repaid the TARP funding before 2009). The sample included 19,249 observations of 5,884 executives from 624 firms in the S&P 500 index from January 2007 to December 2013. (The sample exceeds 500 firms because of changes to the S&P 500 index, with firms entering and exiting the index over time). The author collected data on executive compensation from the SEC website and from company financial statements on Compustat.
Findings
The study found that TARP compensation restrictions were negatively associated with executive wage compensation from 2009 to 2011 and with executive nonmonetary compensation (perks) from 2009 to 2012.
Considerations for Interpreting the Findings
The author did not account for preexisting differences between the groups before the TARP program’s compensation restrictions began. These preexisting differences between the groups—and not the compensation restrictions—could explain the observed differences in the outcomes.
Causal Evidence Rating
The quality of causal evidence presented in this report is low because the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to TARP CEO compensation restrictions; other factors are likely to have contributed.