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How post-crisis regulation has affected bank CEO compensation

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  • Gambacorta, Leonardo
  • Cerasi, Vittoria
  • Deininger, Sebastian M.
  • 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

  • Gambacorta, Leonardo & Cerasi, Vittoria & Deininger, Sebastian M. & 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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    Cited by:

    1. Iñaki Aldasoro & Leonardo Gambacorta & Paolo Giudici & Thomas Leach, 2023. "Operational and Cyber Risks in the Financial Sector," International Journal of Central Banking, International Journal of Central Banking, vol. 19(5), pages 340-402, December.
    2. Marwa Sallemi & Salah Ben Hamad & Nejla Ould Daoud Ellili, 2023. "Executive compensation and bank’s stability: which role of the corruption control? An empirical evidence from OECD banks," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(2), pages 457-477, June.
    3. Bertay, Ata & Carreño Bustos, José & Huizinga, Harry & Uras, Burak & Vellekoop, N., 2022. "Technological Change and the Finance Wage Premium," Discussion Paper 2022-002, Tilburg University, Center for Economic Research.
    4. 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.
    5. Abascal, Ramón & González, Francisco, 2023. "What drives risk-taking incentives embedded in bank executive compensation? Some international evidence," Journal of Corporate Finance, Elsevier, vol. 79(C).
    6. 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.
    7. Paul Farah & Hui Li, 2021. "CEO Turnovers: Transparency of Announcements and the Outperformance Puzzle," IJFS, MDPI, vol. 9(3), pages 1-22, June.
    8. Djebali Nesrine, 2023. "Does governance matter for bank stability? “MENA region case”," Journal of Asset Management, Palgrave Macmillan, vol. 24(4), pages 312-328, July.
    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. 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), revised 2020.
    11. 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).
    12. Sara De Masi & Kose John & Agnieszka Słomka-Gołębiowska & Piotr Urbanek, 2023. "Regulation and post-crisis pay disclosure strategies of banks," Review of Quantitative Finance and Accounting, Springer, vol. 61(4), pages 1243-1275, November.
    13. 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).
    14. 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.
    15. Stefano Colonnello & Giuliano Curatola & Shuo Xia, 2024. "When Does Linking Pay to Default Reduce Bank Risk?," Working Papers 2024: 07, Department of Economics, University of Venice "Ca' Foscari".
    16. Colonnello, Stefano & Koetter, Michael & Wagner, Konstantin, 2023. "Compensation regulation in banking: Executive director behavior and bank performance after the EU bonus cap," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    17. Alberto Razul & Orlando Gomes & Mohamed Azzim Gulamhussen, 2024. "Bonuses, options, and bank strategies," SN Business & Economics, Springer, vol. 4(1), pages 1-28, January.
    18. 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).
    19. 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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