Friday, October 18, 2019
In the light of the global financial crisis, discuss how the Essay - 1
In the light of the global financial crisis, discuss how the remuneration of chief executives of banks should be determined - Essay Example There are also macroeconomic factors for the occurrence of the crisis that include practices in accounting and lack of transparency among others. It has also been observed that major risks or weaknesses related to financial crisis lay in the fact that financial crisis occurred due to certain pre-crisis situations which arrived in relation the supervision and regulation of various activities. A few of the micro prudential regulations were poorly structured that contributed in systematic risks. Most of the banks became solvent due to the Basel capital rules (World Bank, 2012). Moreover, the global financial crisis has enabled to underline a critical agency problem which occurred due to excessive rise in the chief executives remunerations especially during the period of 2004 to 2007 in countries such as Australia and the United States (Ariff & et. al., 2012). With this consideration, the paper intends to discuss how the remuneration of chief executives of banks should be determined in o rder to ensue that the ill-effects of the crisis can be mitigated. Discussion The global financial crisis had brought about a greater concern regarding the usage and structure of remuneration which was based on the incentive systems. The executives of the banks were observed to be yielding their benefits on the short-term visions which became apparent upon the value and stability of the organization in the long term basis. It has been observed that banks with large and small amount of compensations had undertaken risks which resulted in significant losses during the crisis situation. It has further been observed that there were various variations relating to the structure of remunerations paid to the chief executives in banks in different countries. According to a study, in around six investment banks in the US the remuneration subscribed to the executives was nearly 2% of the total compensation on an annual basis, which was much lower from the remuneration provided to executives in the European countries which was ranging from 20 to 35%. Consequently, most of the European countries were in support and adapted the framework of corporate governance relating to the concern of remuneration aspect. The concept of surpassing payment of executives has also been paid greater attention to. . In this regard, it can be observed that the issues relating to financial crisis are specified to the corporate governance relating to the separation of position of Chairman along with the CEO, as the requirements of both the personnel are quite similar in issues relating to remuneration (The World Bank Group, 2011). With regard to the remuneration of the chief executives of banks, the remuneration committee should ensure by taking the responsibility that the organizations are selecting comprehensible policies of remuneration with respect to every employee in the organization. In response to the financial crisis which occurred in 2008, it can be observed that the payment of bonuses to the executives during and after the period of global financial crisis played a pivotal role in the remuneration aspect. The executives were paid their remunerations according to their performances in most of the banks. The rescheduling or rearrangement of incentives can be paid to the employees for showing greater sustainable performances.