Remuneration at Large Financial Services Firms

Mark Carey

This article was first published as a chapter in Managing Systemic Exposure, by Risk Books.

Remuneration has been a challenge for directors and senior managers of large financial services firms in the wake of the financial crisis that began in 2007. A lack of attention to risk-taking incentives was identified as one of the contributors to risks that proved costly to individual firms and the industry during the crisis, leading to initiatives by regulators in many nations and attention from shareholders and the press. Remuneration in the financial industry also became a focal point for those who believe that levels of pay are too high at corporations of all kinds, or that pay is not structured to serve share-holder interests. Policy actions and public attention were especially intense at firms that required injections of capital from governments, but major European and North American banks were all singled out for attention, in part because of a perception that all would have failed if extraordinary assistance had not been forthcoming from governments and central banks.

This chapter will describe some of the actions and motivations of firms and stakeholders, as well as strategies