Document Type
Article
Publication Date
12-2-2011
Publisher
Boston University School of Law
Language
en-US
Abstract
Few doubt that executive compensation arrangements encouraged the excessive risk taking by banks that led to the recent Financial Crisis. Accordingly, academics and lawmakers have called for the reform of banker pay practices. In this Article, we argue that regulator pay is to blame as well, and that fixing it may be easier and more effective than reforming banker pay. Regulatory failures during the Financial Crisis resulted at least in part from a lack of sufficient incentives for examiners to act aggressively to prevent excessive risk. Bank regulators are rarely paid for performance, and in atypical cases involving performance bonus programs, the bonuses have been allocated in highly inefficient ways. We propose that regulators, specifically bank examiners, be compensated with a debt-heavy mix of phantom bank equity and debt, as well as a separate bonus linked to the timing of the decision to take over a bank. Our pay-for-performance approach for regulators would help reduce the incidence of future regulatory failures.
Recommended Citation
Frederick Tung & M T. Henderson,
Pay for Regulator Performance
,
in
No. 11-43
Boston University School of Law, Law and Economics Research Paper Series
(2011).
Available at:
https://scholarship.law.bu.edu/faculty_scholarship/28
Comments
Published as: "Pay for Regulator Performance," 85 Southern California Law Review1003 (2012).