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Compensation regulation in banking: Executive director behavior and bank performance after the EU bonus cap

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  • Colonnello, Stefano
  • Koetter, Michael
  • Wagner, Konstantin

Abstract

The regulation that caps executives’ variable compensation, as part of the Capital Requirements Directive IV of 2013, likely affected executive turnover, compensation design, and risk-taking in EU banking. The current study identifies significantly higher average turnover rates but also finds that they are driven by CEOs at poorly performing banks. Banks indemnified their executives by off-setting the bonus cap with higher fixed compensation. Although our evidence is only suggestive, we do not find any reduction in risk-taking at the bank level, one purported aim of the regulation.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:jaecon:v:76:y:2023:i:1:s0165410122000994
    DOI: 10.1016/j.jacceco.2022.101576
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    More about this item

    Keywords

    Banks; Bonus cap; Executive compensation; Executive turnover;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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