In fairness to the analysts at Smith Barney, this finding comes as no shock to them, and they have reported this same finding in their annual review of bank CEO compensation for as long as I can remember. Moreover, the results of Smith Barney’s look at this issue are confirmed by numerous other studies, such as this one from a professor at Indiana University.

Like all corporate CEOs, bank CEO compensation is based on peer groups. With banks, the composition of those peer groups are invariably based on asset size. Such is the case in spite of the fact that most bankers who run those institutions, when speaking to investors, talk about how unimportant asset size is a metric of performance.

A few days ago I was with the retired Chairman of a major bank, and he was talking about the difference between his institution now versus when he was in charge.

"I tell them (senior management) that this place is getting big enough that you can hide," he said. "It was pretty hard for me to do that."

Big enough to hide, to insulate the top guy from blame. Big enough—in assets—to justify a bigger paycheck.

It’s little wonder than so many de novos have been formed in recent years with a "build to sell" business plan. The banking entrepreneurs forming these institutions know how the game is played. While the volume of m&a may wax and wane and prices paid may vary from year to year, there’s one constant: the CEOs of potential acquirers have incentives to pay a little extra or fudge a little on the projections to get a deal done. Doing so adds more balance sheet assets, and bolsters documentation used by the compensation committee of the board.