Is Stricter Regulation of Incentive Compensation the Missing Piece?
Larry D. Wall
Working Paper 2019-06
Although a number of steps have been taken to reduce the risk of financial stability, some significant weaknesses remain. This paper examines whether stricter regulation of incentive compensation is the missing piece needed to reduce risk to acceptable levels. Unfortunately, this review of the literatures on the relationship of risk to bank chief operating officer and bank employee compensation suggest both have some potential but that significant concerns remain in both cases. At this point, we cannot confidently say that compensation regulation is the missing piece.
JEL classification: G01, G21, G28
Key words: incentive compensation, bank regulation