Banker compensation may get more complicated and have fewer zeroes if the International Monetary Fund has a say.
The IMF’s most recent Global Financial Stability Report evaluates executive pay, corporate governance and risk-taking in some of the largest banks around the world and recommends policy measures to ensure only prudent risk-taking is rewarded.
While a number of quantitative and qualitative factors contributed to the global financial crisis, the report argues that structure of executive compensation encouraged bankers to take shortsighted risks with lasting negative impacts:
The causes of such risk taking were many and complex, but there is general agreement in the financial industry, the public sector, and academia that incentive structures at some financial institutions played an important role.
Other contributors to reckless risk-taking were weak regulatory frameworks and boards of directors that were not independent of banking operations.
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