Executive Compensation Regulation - White Paper - Council of Institutional Investors: Wall Street Pay: Size, Structure and Significance for Shareowners

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November, 2010

This paper, which was prepared by Paul Hodgson, Senior Research Associate, with Greg Ruel, Advisory Services Manager, and Michelle Lamb, Research Associate, The Corporate Library, investigates the nature and significance for investors of the size and structure of executive compensation at major U.S. financial institutions. The study compared pre-crisis and post-crisis compensation practices of financial institutions with those of large non-financial companies. Among the findings in the study:

  • Little or no Wall Street compensation was linked to long-term future performance measures. This contrasts with compensation at many non-financial companies, where incentive pay was awarded for hitting long-term performance targets.
  • The lack of long-term performance measurement on Wall Street and high absolute levels of compensation likely helped to fuel excessive risk-taking.
  • While Wall Street compensation has improved post-crisis, with such changes as clawback provisions, longer deferral periods, and an increase in equity-based compensation, none of the banks in the study has addressed adequately the importance of tying compensation to long-term value growth.
  • Non-U.S.-based financial entities have been more aggressive in altering the compensation issue than U.S.-based financial institutions.

The study concludes with suggestions as to potential remedies, such as filing shareholder proposals, and lobbying Congress for more effective reforms.



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