Financial sector compensation and excess risk-taking—a consideration of the issues and policy lessons
AbstractThis paper surveys the ways that the structure and magnitude of financial sector compensation can generate incentives for excessive risk taking. It also highlights the underlying economic and institutional forces that have underpinned and sustained these pay structures, including aspects of corporate governance in financial institutions, regulatory capture by financial elites, the nature of the labour market for finance professionals and the extended economic boom of the 1990s and 2000s. The measures endorsed by the Financial Stability Board and the G20 for sound compensation practices do not go far enough in several areas; a broader set of measures need consideration.
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Bibliographic InfoPaper provided by United Nations, Department of Economics and Social Affairs in its series Working Papers with number 115.
Length: 17 pages
Date of creation: Apr 2012
Date of revision:
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Web page: http://www.un.org/en/development/desa/working-papers.html
More information through EDIRC
financial market compensation; financial institutions; excess risk-taking; magnitude and structure of pay; governance of compensation; labour market mobility; regulation;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James Crotty, 2010. "The Bonus-Driven “Rainmaker” Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability (revised)," Working Papers wp209_revised3, Political Economy Research Institute, University of Massachusetts at Amherst.
- Philippon, Thomas & Reshef, Ariell, 2009.
"Wages and Human Capital in the U.S. Financial Industry: 1909-2006,"
CEPR Discussion Papers
7282, C.E.P.R. Discussion Papers.
- Thomas Philippon & Ariell Reshef, 2009. "Wages and Human Capital in the U.S. Financial Industry: 1909-2006," NBER Working Papers 14644, National Bureau of Economic Research, Inc.
- Kempf, Alexander & Ruenzi, Stefan & Thiele, Tanja, 2008.
"Employment risk, compensation incentives and managerial risk taking: Evidence from the mutual fund industry,"
CFR Working Papers
07-02, University of Cologne, Centre for Financial Research (CFR).
- Kempf, Alexander & Ruenzi, Stefan & Thiele, Tanja, 2009. "Employment risk, compensation incentives, and managerial risk taking: Evidence from the mutual fund industry," Journal of Financial Economics, Elsevier, vol. 92(1), pages 92-108, April.
- Jeffrey M. Lacker, 2009. "What Lessons Can We Learn from the Boom and Turmoil?," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 53-63, Winter.
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