2. “Responsible” Remuneration Policies in Banks: A Review of Best Practices in Europe

The authors argue that the case for regulating the structure of bankers’ pay is rather weak, while regulation of remuneration and risk governance and of remuneration disclosure are to some extent justified.

CEBS—Committee of European Banking Supervisors—was an independent advisory Group on banking supervision in the European Union (EU). It was established by the European Commission in 2004 by Decision 2004/5/EC. On 1 January 2011, this committee was succeeded by the European Banking Authority (EBA), which took over all existing and ongoing tasks and responsibilities of the Committee of European Banking Supervisors (CEBS). The European Banking Authority was established by Regulation (EC) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010.

The guidelines become directly binding on a single bank only at the moment of their transposition by the competent authorities of each Member State. The competent national authorities are subject to the “comply or explain” principle: this means that they will be able to adapt to the EBA’s Guidelines, thus modifying the national provisions on practices and remuneration policies in the credit sector (which are instead directly binding on the banks of individual Member States), or they may choose not to adapt. In case of non-compliance, the competent national authorities will have to inform the EBA and justify their reasons. In this circumstance, the EU Commission could initiate an infringement procedure against any defaulting Member State, if it considers the reasons for non-compliance to be inadequate: this procedure could bring the EU Commission and the Member State in front of the EU Court of Justice, which would then have the power to judge on the lawfulness of the decision not to adapt to the guidelines issued by the European Banking Authority.

The European Commission published Regulatory Technical Standards (RTS) on the criteria to identify categories of staff whose professional activities have a material impact on an institution’s risk profile, as Delegated Act on 6 June 2014.

Bank Millenium, Bank Zachodni WBK SA and ING Bank Śląski SA have been excluded because they belong to banking groups for which only the holding bank has been considered.

The “Governance Index,” denoted as “G” (Gompers et al. 2003), was built using 24 distinct corporate governance provisions for a sample of about 1500 firms as a proxy for the balance of power between manager and shareholders in each firm. The “Compliance on Related Party Transactions” (abbreviated as “CoRe” index, Bianchi et al. 2011) attempts to measure the quality of a company’s internal procedures for RPTs (related party transactions). Finally, the “Anti-Director Rights index” (La Porta et al. 1998) tries to measure how strongly the legal system protects minority shareholders against managers or dominant shareholders. Finally, Djankov’s Anti-Self-Dealing index (Djankov et al. 2008) consists of numerical measures of the intensity of regulation of self-dealing across 72 countries, evaluating both public and private enforcement. Another remuneration disclosure score was built by Laksmana (2008), who used a comprehensive checklist of 23 compensation-related items to provide evidence that greater compensation disclosure reduces information asymmetry. However, the score of Laksmana excludes the banking industry and concerns the examination period before the subprime crisis.