Share-Based Compensation and the Financial Crisis

Abstract

The recent recession of 2007-2008, also called the Financial Crisis, presented an abnormal economic environment for the financial services industry. In this paper, I examine fluctuations in executive share-based compensation during the financial crisis and its following recovery. I found that the amount of share-based compensation as a percentage of total compensation had a peaked standard deviation in 2009, a year that marks the beginning of recovery. For example, in 2009 Goldman Sachs used 0% share-based compensation while Citibank used over 90% of executive compensation in the form of share-based compensation. This data suggests that firms use different behavioral and financial methods to counteract the effects of an economic downturn.