Exploring the effects of the ‘bonus cap’ rule: the impact of remuneration structure on risk-taking by bank managers

Kokkinis, Andreas

doi:10.1080/14735970.2018.1455492

Cited by 5 publications

(3 citation statements)

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“…114 Related to the point of high fixed remunerations, it has been argued that they would reduce the flexibility of financial institutions in lowering costs in case of economic difficulties. 115 However, the 2016 Final Report concluded that the impact of fixed costs was nominal and no evidence was found that this rule limited the firm's ability to respond to financial difficulties. 116 Second, it has been argued that the maximum ratio rule would reduce efficiency because once staff have reached the maximum amount of variable remuneration, they no longer have any incentive to make risky but well-informed decisions.…”

Section: Evaluation Of the Inefficiencies Of The Maximum Ratio Rulementioning

confidence: 99%

The Commission’s Evaluation of the Financial Executives’ Remuneration Policy and the Amendments of Directive No 2019/878

Petrucci¹

2021

EULR

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The Commission evaluation of EU policies has become an important practice for the review of EU rules. This article is a case study of the 2016 evaluation of the remuneration rules applicable to financial executives (Directive No 2013/36 – CRD IV), which led to their amendments made by Directive 2019/878. These amendments have been negligible and despite the efforts of private interest groups operating in the financial sector, the so-called bonus cap has been maintained. This article explores the dynamics amongst the actors involved in the evaluation of the remuneration policy (Commission, European Banking Authority, and stakeholders) and provides an account of the factors that shaped such evaluation. This paper argues that the influence of private interest groups was limited. Although the bonus cap is a contested policy, and the evidence of its impact ambiguous, it still enjoys legitimacy. Financial executives’ remuneration policy, CRD IV Bonus Cap, Commission evaluation, Amendments of Directive No 2019/878.

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Section: Evaluation Of the Inefficiencies Of The Maximum Ratio Rulementioning

confidence: 99%

The Commission’s Evaluation of the Financial Executives’ Remuneration Policy and the Amendments of Directive No 2019/878

Petrucci¹

2021

EULR

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“…Latham and Braun (2010) [5] indicated that there is a positive relationship between corporate debt level and the decision of an IPO (Initial Public Offering). Kokkinis (2019) [6] explored the impacts of the rule of a bonus cap on managers' decision incentives, which is linked to different degrees of risk. Kim (2015) [7] found that, as the compensation for executives increases, the greater both the investment in R&D (research and development) and the profits become.…”

Section: Related Studiesmentioning

confidence: 99%

Optimize the Banker’s Multi-Stage Decision-Making and the Mechanism of Pay Contract Influencing on Bank Default Risk in the Long-Term Model

Jiang

Yuan

2020

Sustainability

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In recent years, researchers have been devoted to illustrating the correlation between bankers’ pay contracts and a bank’s risk-taking behavior where corporate governance is concerned, especially throughout the past four decades and by using empirical analysis. Despite being a widespread concern, the causality of this relationship is not thoroughly understood. We initiate this research by modeling bankers’ multi-stage decisions of option investment and bond investment from the perspective of theoretical analysis, and by analyzing the function image results using data from Wells Fargo & Co. from the ExecuComp, BvD Orbis, and CRSP-COMPUSTAT databases. We aim to deeply explore the mechanism of how compensation influencing on risk. We are the first to find that it has a “risk cap”, which is the optimal risk level to maximize the return of decision-making. We are also the first to discover the optimal decision coefficient level to maximize the decision return, during which the internal causes and mechanisms of the impact of bankers’ compensation on a bank’s default risk are revealed. We also illustrate the influence of the number of periods. We expect our findings to provide advice for establishing policies when designing pay contracts.

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“…Nevertheless, shifting the variable component of the remuneration to fixed salary with the semiautomatic consent of the shareholders in times of bonanza does not necessarily improve risk management. 154 At the end of the day, shareholders seek to maximize their profit and their interest in promoting financial stability is more mediated. 155 The measures that defer the enjoyment of allowances and that adapt them to the long-term performance of the firm have more influence on the risk-taking decisions of financial executives than the variable salary cap.…”

Section: The Rules For the Remuneration Of Financial Executivesmentioning

confidence: 99%

The Regulation of Financial Markets and the European Social Model

Martínez

2019

SSRN Journal

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Exploring the effects of the ‘bonus cap’ rule: the impact of remuneration structure on risk-taking by bank managers

Cited by 5 publications

References 0 publications

The Commission’s Evaluation of the Financial Executives’ Remuneration Policy and the Amendments of Directive No 2019/878

The Commission’s Evaluation of the Financial Executives’ Remuneration Policy and the Amendments of Directive No 2019/878

Optimize the Banker’s Multi-Stage Decision-Making and the Mechanism of Pay Contract Influencing on Bank Default Risk in the Long-Term Model

The Regulation of Financial Markets and the European Social Model

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