Regulation of Compensation and Systemic Risk: Evidence from the UK

70 Pages Posted: 28 Mar 2016 Last revised: 23 Oct 2018

See all articles by Anya Kleymenova

Anya Kleymenova

The University of Chicago Booth School of Business

A. Irem Tuna

London Business School

Date Written: October 22, 2018

Abstract

This paper studies the consequences of regulating executive compensation at financial institutions by examining the introduction of the UK Remuneration Code, which aimed to change the decision-making horizon and risk-taking incentives. We find that, in line with the intent of the regulation, UK banks contribute less to systemic risk and are less sensitive to systemic risk after the implementation of the Code. Affected UK banks have also become less risky. However, when compared to their US counterparts and other UK firms, UK banks also experience higher CEO turnover. Therefore, while the regulation may have had the desired effect on systemic risk and on incentives to take risk, it may also have given rise to some unintended consequences.

Keywords: Executive compensation, financial institutions; regulation, EU bonus caps, UK Remuneration Code

JEL Classification: G28, G34, G38

Suggested Citation

Kleymenova, Anya V. and Tuna, Ayse Irem, Regulation of Compensation and Systemic Risk: Evidence from the UK (October 22, 2018). Chicago Booth Research Paper No. 16-07. Available at SSRN: https://ssrn.com/abstract=2755621 or http://dx.doi.org/10.2139/ssrn.2755621

Anya V. Kleymenova (Contact Author)

The University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4348 (Phone)

Ayse Irem Tuna

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
1,071
rank
18,385
Abstract Views
3,424
PlumX Metrics