Executive Pay at Ailing Banks and Beyond: A European Perspective

Capital Markets Law Journal, Vol. 5, No. 2, 2010

Posted: 13 Nov 2010

See all articles by Guido Ferrarini

Guido Ferrarini

University of Genoa - Law Department and Centre for Law and Finance; European Corporate Governance Institute (ECGI)

Maria Cristina Ungureanu

Sodali; Genoa Centre for Law and Finance, University of Genoa; European Corporate Governance Institute (ECGI)

Date Written: November 11, 2010

Abstract

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

Ferrarini, Guido and Ungureanu, Maria Cristina, Executive Pay at Ailing Banks and Beyond: A European Perspective (November 11, 2010). Capital Markets Law Journal, Vol. 5, No. 2, 2010. Available at SSRN: https://ssrn.com/abstract=1707338

Guido Ferrarini (Contact Author)

University of Genoa - Law Department and Centre for Law and Finance ( email )

Via Balbi, 22
16126 Genova, 16100
Italy
+39 010 209 9894 (Phone)
+39 010 209 9890 (Fax)

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Maria Cristina Ungureanu

Sodali ( email )

9 West 57th Street
26th Floor
New York, NY 10019
United States

Genoa Centre for Law and Finance, University of Genoa ( email )

Genova
Italy

HOME PAGE: http://www.clfge.org

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
Brussels, B-1050
Belgium

HOME PAGE: http://www.ecgi.org

Register to save articles to
your library

Register

Paper statistics

Abstract Views
842
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information