Special Treatment to Bank CEOs in Indonesia

Abstract

The bank still plays the main role as a funding source in Indonesia. Because of that, they are securing the bank's position and showing its best performance become very important. A Special treatment for bank CEOs is one way. This study wants to answer the question of whether that way is sufficient. The special treatment is the CEO compensation, in the form of CEO salary as the main variable and CEO tenure and insider holding as the control variables. Other control variables are financial ratios: debt-to-equity ratio, lesser prudence, and loan-to-deposit ratio. All variables are associated with bank performance consisting of four variables: net interest margin, return on assets, return on equity, and cash flow to assets. By operating the OLS (ordinary least square), this research shows that CEO compensation in the form of salary has a negative effect on banks’ performance. However, another form of CEO compensation, the insider holding, positively influence on cash flow to assets. These results indicate that salary does not stimulate bank CEOs to do their best, whereas bank CEOs perform well when they also act as insider holders.