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In the light of the global financial crisis, discuss how the remuneration of chief executives of banks should be determined. - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Remuneration of Chief Executives Remuneration of Chief Executives Introduction In the era of the financial crisis, the banking sector has also been exposed to financial risks and the danger of getting bankrupted…
It was observed by several economists that for banks, one of the major reasons of not been able to survive during the financial crisis is the remuneration policies for the bank CEOs. Mcgarvey (2012) illustrates the fact that even in the era of financial instability of the world economy, salaries of CEOs is just climbing up without any adequate justification of such high salaries. This in-turn also exposes banks and other firms to higher risks without promising that the high paid CEO will turn away those risks coming in their way. Hence in the banking sector especially, it is important to devise polices, which ensures that CEOs are paid in the interest of the bank and not more than their potential and skills (Mcgarvey, 2012). Determining the Remuneration of Chief Executives 1. Maintaining Equilibrium between the bank’s profit and remunerations. The prime objective of any bank is to attract investors and get more capability to land money to others. Therefore, the shareholders have to make sure that the remuneration of the CEO is aligned with the bank’s profit. In the period of the financial crisis, if the bank is making a good profit, then paying high salary to the CEO is justified. However, in case the bank is losing its clients and the profit is shrinking, the salary of the CEO should also be reduced proportionally, to maintain equilibrium between the bank’s profits and expenditures (NCNB, 2006). 2. ...
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