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Regulation of Bank Management Compensation

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Financial Market Regulation

Abstract

The structure of management compensation influences agency problems involving both equity holders and debt holders. On the one hand, shareholders desire for managers to engage in actions that benefit the shareholders, which gives shareholders an incentive to tie managerial compensation to shareholder returns. On the other hand, tying management compensation to shareholder returns provides a potential mechanism for shareholders to shift risk to holders of the firm’s debts. As documented by Demirgüç-Kunt et al. (2008), banking firms in most nations receive government-sponsored deposit insurance. Thus, among the potential debt holders on the receiving end of risk-shifting incentives potentially created by compensation arrangements aligning interests of bank managers with those of shareholders are the taxpayers who ultimately guarantee these deposit insurance systems.

This chapter also appeared as Networks Financial Institute Policy Brief 2010-PB-06.

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Notes

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    This chapter also appeared as Networks Financial Institute Policy Brief 2010-PB-06.

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Authors and Affiliations

  1. Baylor University, One Bear Place #98003, Waco, TX, 76798, USA

    David VanHoose

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  1. David VanHoose
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Correspondence to David VanHoose .

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Editors and Affiliations

  1. Indiana State University, Scott College of Business, Networks Financial Institute, Sycamore St. #601 800, Indianapolis, 47809, Indiana, USA

    John A. Tatom

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VanHoose, D. (2011). Regulation of Bank Management Compensation. In: Tatom, J. (eds) Financial Market Regulation. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-6637-7_11

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  • DOI: https://doi.org/10.1007/978-1-4419-6637-7_11

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  • Publisher Name: Springer, New York, NY

  • Print ISBN: 978-1-4419-6636-0

  • Online ISBN: 978-1-4419-6637-7

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