Regulating Banking Bonuses in the European Union: A Case Study in Unintended Consequences
27 Pages Posted: 7 Sep 2013
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Regulating Banking Bonuses in the European Union: A Case Study in Unintended Consequences
Date Written: September 2013
Abstract
Beginning in 2014, the European Union (EU) will limit the amount of bankers' bonuses to the amount of fixed remuneration; the cap could be increased to 2:1 with the backing of a supermajority of shareholders. I demonstrate that the pending EU regulations restrictions will: (1) increase rather than decrease incentives for excessive risk taking; (2) result in significant increase in fixed remuneration; (3) reduce incentives to create value; (4) reduce the competitiveness of the EU banking sector; and (5) result in a general degradation in the quality of EU investment bankers, thereby decreasing access to capital and increasing the cost of capital.
Keywords: executive compensation, CEO pay, banking bonuses, financial crisis, regulation, European Union
Suggested Citation: Suggested Citation
Kevin J. Murphy (Contact Author)
University of Southern California - Marshall School of Business ( email )
BRI 308, MC 0804
Los Angeles, CA 90089-0804
United States
213-740-6553 (Phone)
213-740-6650 (Fax)
USC Gould School of Law
699 Exposition Boulevard
Los Angeles, CA 90089
United States
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Regulating Banking Bonuses in the European Union: A Case Study in Unintended Consequences
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