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How post-crisis regulation has affected bank CEO compensation

Author

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  • Cerasi, Vittoria
  • Deininger, Sebastian
  • Gambacorta, Leonardo
  • Oliviero, Tommaso

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. Banks in jurisdictions which implemented the FSB's Principles and Standards of Sound Compensation in national legislation changed their compensation policies more than other banks. Compensation in those jurisdictions is less linked to short-term profits and more linked to risks, with CEOs at riskier banks receiving less, by way of variable compensation, than those at less-risky peers. This was particularly true of investment banks and of banks which previously had weaker risk management, for example those that previously lacked a Chief Risk Officer.

Suggested Citation

  • Cerasi, Vittoria & Deininger, Sebastian & Gambacorta, Leonardo & Oliviero, Tommaso, 2017. "How post-crisis regulation has affected bank CEO compensation," CEPR Discussion Papers 12008, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12008
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Iñaki Aldasoro & Leonardo Gambacorta & Paolo Giudici & Thomas Leach, 2020. "Operational and cyber risks in the financial sector," BIS Working Papers 840, Bank for International Settlements.
    2. Gang Bai & Qiurong Yang & Elyas Elyasiani, 2022. "Managerial Risk-Taking Incentives and Bank Earnings Management: Evidence from FAS 123R," Sustainability, MDPI, vol. 14(21), pages 1-21, October.
    3. Bertay, Ata Can & Carreño, José & Huizinga, Harry & Uras, Burak & Vellekoop, Nathanael, 2022. "Technological change and the finance wage premium," SAFE Working Paper Series 361, Leibniz Institute for Financial Research SAFE.
    4. Paul Farah & Hui Li, 2021. "CEO Turnovers: Transparency of Announcements and the Outperformance Puzzle," IJFS, MDPI, vol. 9(3), pages 1-22, June.
    5. Larry D. Wall, 2020. "Is stricter regulation of incentive compensation the missing piece?," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(1), pages 82-94, March.
    6. Colonnello, Stefano & Koetter, Michael & Wagner, Konstantin, 2020. "Effectiveness and (in)efficiencies of compensation regulation: Evidence from the EU banker bonus cap," IWH Discussion Papers 7/2018, Halle Institute for Economic Research (IWH).
    7. Ahmed, Shaker & Ranta, Mikko & Vähämaa, Emilia & Vähämaa, Sami, 2023. "Facial attractiveness and CEO compensation: Evidence from the banking industry," Journal of Economics and Business, Elsevier, vol. 123(C).
    8. Bertay, Ata & Carreño Bustos, José & Huizinga, Harry & Uras, Burak & Vellekoop, N., 2022. "Technological Change and the Finance Wage Premium," Other publications TiSEM e3543110-e75d-4749-b4ee-2, Tilburg University, School of Economics and Management.
    9. Sakalauskaite, Ieva & Harris, Qun, 2022. "Measuring the effects of bank remuneration rules: evidence from the UK," Bank of England working papers 1008, Bank of England.
    10. Hilscher, Jens & Landskroner, Yoram & Raviv, Alon, 2021. "Optimal regulation, executive compensation and risk taking by financial institutions," Journal of Corporate Finance, Elsevier, vol. 71(C).
    11. Abid, Ammar & Gull, Ammar Ali & Hussain, Nazim & Nguyen, Duc Khuong, 2021. "Risk governance and bank risk-taking behavior: Evidence from Asian banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    12. Shane Magee & Cheok Man Ng & Sue Wright, 2021. "How executive remuneration responds to guidance: evidence from the Australian banking industry," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5281-5307, December.

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    More about this item

    Keywords

    Managerial compensation; Prudential regulation; risk-taking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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