Compensation Regulation in Banking: Executive Director Behavior and Bank Performance after the EU Bonus Cap

47 Pages Posted: 25 Jan 2018 Last revised: 27 Dec 2022

See all articles by Stefano Colonnello

Stefano Colonnello

Ca Foscari University of Venice; Halle Institute for Economic Research

Michael Koetter

Halle Institute for Economic Research

Konstantin Wagner

Halle Institute for Economic Research

Date Written: December 24, 2022

Abstract

The regulation that caps executives' variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.

Keywords: Banks, Bonus Cap, Executive Compensation, Executive Turnover

JEL Classification: G21, G32, G34

Suggested Citation

Colonnello, Stefano and Koetter, Michael and Wagner, Konstantin, Compensation Regulation in Banking: Executive Director Behavior and Bank Performance after the EU Bonus Cap (December 24, 2022). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3104869 or http://dx.doi.org/10.2139/ssrn.3104869

Stefano Colonnello

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Konstantin Wagner (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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