Aligning Incentives at Systemically Important Financial Institutions
7 Pages Posted: 28 Mar 2013
Date Written: March 25, 2013
UBS recently announced it would pay part of the bonuses of 6,500 highly compensated employees with bonds that would be forfeited if the bank does not meet its capital requirements. This memo underscores the benefits of contingent deferred compensation and makes recommendations for how such compensation should be structured at systemically important institutions. We also revise our proposal for contingent convertible bonds, explaining how these hybrid bonds can be combined with better designs for deferred compensation to reduce the need for future bailouts.
Keywords: Bonus, compensation, contingent convertible bonds, capital, regulation, financial crisis
JEL Classification: G21, G28, G32, G34, G38
Suggested Citation: Suggested Citation