In this paper, I analyse the rise of mandatory structure of bankers? pay in Europe as outcome of criticism of pre-crisis remuneration practices at financial institutions. Whether flawed bankers? pay contributed to the financial crisis is still debated amongst scholars. It appears more likely that insufficient prudential regulation and flawed risk management contributed to banks?
undertaking risks that were later proven to be excessive from a societal perspective. All this would have suggested improving risk management systems and reforming areas of prudential regulation such as capital adequacy and organizational requirements, rather than intervening directly on bankers? incentives. Nonetheless, governments and legislators, under the pressure of the media and public opinion, proceeded to extensive reforms of bankers? remuneration, with reference to both the top executives and other risk-taking/high-earning employees at various levels of the institutions concerned. Indeed, the FSB principles and standards cover not only remuneration governance and disclosure, but also remuneration structures. Both the fixed and the variable remuneration components and the relationship between the same are subject to detailed regulation. As a result, the international standards have nature of ?rules? and have been implemented as such. The EU in particular has followed a strict approach to the implementation of the FSB standards and has also departed from the latter by introducing an unprecedented cap on variable remuneration in CRD IV. I analyse this cap from a legal and economic perspective, showing that its rationale is flawed and that unintended consequences may derive from it as a result. Moreover, the cap is inconsistent with other aspects of CRD IV which incorporate the international standards on variable pay.
In 2017 the European Union adopted amendments to the Shareholder Rights Directive enacted a decade earlier. Among the changes was a new Article 9c dealing with the topic of related party transactions (RPT). This paper analyses how that new...Read more
This paper quantifies the cost of CEO incentive compensation by estimating an elasticity of pay to the variance of pay. Using US CEO compensation data and a variety of empirical approaches, we find that CEOs with riskier pay packages are paid...Read more
Potential conficts of interest arise when IPO underwriters allocate IPO shares to their affiliated funds. We hypothesize that such nepotism incentives affect IPO pricing. Using a novel hand-collected dataset, we find support for this hypothesis...Read more
As FinTech promises to increase competition for both banks and investment firms, we consider the market failures that emerge from its existence, particularly as they relate to issues of financial stability and investor protection. This chapter...Read more