How post-crisis regulation has affected bank CEO compensation. (June 2020)

• Record Type: Journal Article
• Authors: Cerasi, Vittoria; Deininger, Sebastian M.; Gambacorta, Leonardo; Oliviero, Tommaso
• Is Part Of: Journal of international money and finance. Volume 104(2020)
• Publication Date: 2020-06
• Subjects: G21 -- G28 -- G32; Banks -- Managerial compensation -- Prudential regulation -- Risk-taking; International finance -- Periodicals; Foreign exchange -- Periodicals; Finances internationales -- Périodiques; Change -- Périodiques; Foreign exchange; International finance; Periodicals; 332.04205
• DOI: 10.1016/j.jimonfin.2020.102153
• Languages: English
• ISSNs: 0261-5606

Abstract

Highlights: Banks have changed CEO remuneration following post-crisis rules especially after the implementation in 2011 of the FSB's Principles and Standards of Sound Compensation . Bank CEO compensation has become less (positively) correlated with short-term profit and more (negatively) correlated with risk. The change of the sensitivity to risk has been larger for investment banks relatively to commercial banks. Abstract: This paper assesses whether compensation practices for bank Chief Executive Officers (CEOs) changed after the Financial Stability Board (FSB) issued post-crisis guidelines on sound compensation. CEO compensation has become more sensitive to risk, with CEOs in the post-reform period at riskier banks receiving less variable compensation than those at less-risky peers. This was particularly true of investment banks. The changes in compensation practices are in line with the FSB's Principles and Standards of Sound Compensation, although we do not detect significant differences between banks in jurisdictions that directly implemented the FSB guidelines compared to the other banks.