TITLE

Compensation and Risk Incentives in Banking and Finance

AUTHOR(S)
Jian Cai; Cherny, Kent; Milbourn, Todd
PUB. DATE
September 2010
SOURCE
Economic Commentary;9/14/2010, Vol. 2010 Issue 13, p1
SOURCE TYPE
Trade Publication
DOC. TYPE
Article
ABSTRACT
We review why executive compensation contracts are often structured the way they are, analyze risk incentives stemming from various pay schemes, and examine the tendency of the banking and finance industry toward excessive risk-taking. Studying the typical executive pay structures in banking and finance before the financial crisis reveals some potentially problematic practices. These practices may have encouraged "short-termism" and excessive risk-taking, which are two behaviors bank regulators aim to prevent with their recently issued guidance on incentive compensation.
ACCESSION #
55094184

 

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