Summary of Paying for Risk
Bankers, Compensation, and Competition
Restricting bank executives’ pay is misguided. Instead, focus on the competition for banks’ risk takers.
In the rush to crack down on banks’ risk taking after the 2007–2009 financial crisis, politicians and regulators focused on precisely the wrong issue: They restricted pay for bank executives while ignoring the reality that lower-level staff, rather than executives, actually take on the risk. According to legal experts Simone M. Sepe and Charles K. Whitehead, in a competitive market for talent, those employees can sell their services to rival institutions, moving on before their risky bets collapse. getAbstract recommends their report on bank compensation to policy makers, finance leaders and human resources professionals looking to link risk and pay.
In this summary, you will learn
- Why limits on bank executive pay won’t reduce risk and
- What three changes would make pay more rational and risk-taking more reasonable.
About the Authors
Simone M. Sepe is an associate professor of law at the University of Arizona. Charles K. Whitehead is a law professor at Cornell Law School. This report will appear in Volume 100 of Cornell Law Review.
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