Some Banks’ Pay Reform May Show the Way
Simon C. Y. Wong
Northwestern University School of Law; London School of Economics; McKinsey & Co. Inc.
Financial Times, March 14, 2011
The way some financial institutions are implementing compensation reforms suggests a strengthening alignment of interest among executives, their firms, and wider society.
First, through mandatory deferral, payment in equity, and other mechanisms, bankers’ pay is more exposed to longer-term performance outcomes of their firms. Second, performance and payouts are increasingly evaluated through a multi-year lens. Third, risk considerations are now better incorporated into compensation arrangements.
Although problematic remuneration practices remain, the progressive steps taken by some banks provide a reason for optimism that their compensation arrangements will not pose the same danger to systemic stability as in years past.
Number of Pages in PDF File: 2
Keywords: Compensation, Financial Institutions
JEL Classification: G28, G29, G34, M52
Date posted: March 15, 2011 ; Last revised: May 20, 2011
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