Executive Pay at Ailing Banks and Beyond: A European Perspective
Capital Markets Law Journal, Vol. 5, No. 2, 2010
Posted: 13 Nov 2010
Date Written: November 11, 2010
Key points: • This article considers how the recent market turmoil affected national banking systems, thereby prompting state measures; • It describes the remuneration problems shown by the financial crisis: rewards for failure; short-term behaviour; inappropriate design of performance incentives; practice of overstating profits reflected in cash bonuses and short-term gains through stock options; and guaranteed bonuses unrelated to financial results and severance payments. • The article discusses the conditions relative to bankers’ remuneration structures and policies imposed on ailing banks by governments in their rescue packages, providing a transatlantic perspective and an analysis of the UK, French and German frameworks. • The changes in remuneration policies are illustrated through two case studies: one study compares the policies at Lloyds and Royal Bank of Scotland with those at non-ailing banks in the UK; the other compares remuneration policies at UBS and Credit Suisse. • The article analyses how the debate extended internationally to the whole banking sector, with managers’ pay becoming a new area for regulation and supervision post-crisis. • The conclusion reached is that the crisis generated a race to the top in the area of bankers’ pay, leading large banks to self-restraint and to a longer term, risk-cautioned approach to incentive practices.
Keywords: Executive remuneration, corporate governance, banks, financial crisis, supervision
JEL Classification: G20, G21, G28, G30, G32, G34, G38, K22, K31, M12
Suggested Citation: Suggested Citation