Executive bonuses clawback in the banking sector

Abstract

The current post-crisis era in most world countries motivates business entities to focus on improving of risk governance functions. It is mostly concerned to banks because of risky nature of their business. Before global financial crisis the executive compensation in most banks was excessive, that, in turn, led to systemic risk growth. According to transaction cost theory corporate governance is focused at effective performance of banking transactions. In connection with the above-stated thesis the important task at the time is improving the system of executive remuneration in order to ensure the moderate bank risk level. With this aim in 2008 Swiss bank UBS has implemented new compensation system that assumes the clawback provision. This clause concerning the deferred awards of senior managers’ remuneration was included to increase their accountability for loss-creating or fraud behavior. The paper investigates the aftermath of clawback of executive compensation implementation in the biggest European banks and discusses the specific features of the reformed remuneration system amongst financial institutions. Furthermore, after implementation of the clawback provision in leading banks of Europe similar practice has been started in financial institutions of USA, features of which is researched in the paper.