Promising Steps on Bank Pay Reforms
Butterworths Journal of International Banking and Financial Law, April 2011
1 Pages Posted: 12 Apr 2011 Last revised: 19 May 2011
Date Written: April 1, 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.
Keywords: Compensation, financial institutions
JEL Classification: G28, G29, G34, M52
Suggested Citation: Suggested Citation