| dc.description.abstract | This research aims to study the inter-relationships between the incentive salaried pays and the performance results of the senior executives in Taiwan’’s banking industry. Practical research targets on a total of 26 banks, either as commercial banks, or as banking arms for their parent financial holding companies, their stocks either listed on or trading over-the-counter at Taipei Stock Exchange. The researcher analyzed the senior executives’’ salary data, and studied the impacts as well as management effectiveness and operating risks of the banks that implemented incentive programs between the years 2005 and 2010.
The results of the research show that the banks having implemented incentive programs enjoy both higher Returns on Assets (ROA) and Earnings Before Income Tax (EBIT) than those proving nothing of the sort. This apparently reflects a fact that these incentive programs have paid off favorably to the banks’’ management effectiveness, and also proves the validness of the viewpoints of the ＂agent theory＂. In addition, the researcher also finds that while the former banks bill lower NPL (Non-Performance Loan) ratios than the latter, there have been considerable non-collateralized loans added to their overall loan portfolios, thus deteriorated their asset quality and exposured their operating risks, a moral crisis that the
senior executives, in order to pocket more incentive pays and to beautify the management effectiveness, have substantially uplifted the credit loans.
Meanwhile, the research also reveals another fact that different incentive programs will lead to the different results; the banks that implemented ＂incentive programs with giveaways of stocks＂ have harvested higher both ROA and EBIT than those that provide ＂incentive programs with giveaway of options＂. That means the stocks as incentives have paid off proportionally to the level of management effectiveness. However, while those banks providing stocks as incentives have lower NPL ratios than those with options as incentives, the former have more non-collateralized loans in their portfolios, an albert truth that their asset quality worsened and operating risks jumped.
From the perspective of the stock prices vis-a-vis the market, better performers are those banks that gave the stocks as incentives than those offering the options. Obviously, the former banks enjoy the exceed returns in the stock prices, while the latter are losers in comparison.
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