Executive pay and performance: did bankers’ bonuses cause the crisis?

This paper examines the pay-performance relationship between executive cash compensation (including bonuses) and company performance for a sample of large UK companies, focusing particularly on the financial services industry, since incentive misalignment has been blamed as one of the factors causing the global financial crisis of 2007–2008. Although we find that pay in the financial services sector is high, the cash-plus-bonus pay-performance sensitivity of financial firms is not significantly higher than in other sectors. Consequently, we conclude that it unlikely that incentive structures could be held responsible for inducing bank executives to focus on short-term results

Designing financial-incentive programmes for return of medical service in underserved areas of sub-Saharan Africa

In many countries in sub-Saharan Africa health worker shortages are one of the main constraints in achieving population health goals. Financial-incentive programmes for return of service, whereby participants receive payments in return for a commitment to practice for a period of time in a medically underserved area, can alleviate local and regional health worker shortages through two mechanisms. First, they can redirect the flow of those health workers who would have been educated without financial incentive from well-served to underserved areas. Second, they can add health workers to the pool of workers who would have been educated without financial incentives and place them in underserved areas. While financial-incentive programmes are an attractive option to increase the supply of health workers to medically underserved areas – they offer students who otherwise would not have the means to finance a health care education an opportunity to do so, establish legally enforceable commitments to work in underserved areas, and work without compulsion – these programmes may be difficult to implement.Disease, control, global health, financial-incentive programs, Africa.

Corporate Social performance and Financial Characteristics

Whereas firms traditionally have been evaluated solely on financial criteria, contemporary firms are also evaluated on various non-financial criteria, including Corporate Social Performance (CSP). Such data is useful in the pursuit of evidence of a relationship between CSP and various financial characteristics, including financial performance. Evidence on such relationships is valuable from many perspectives. It is valuable to managers who seek to improve their understanding of the ways in which CSP interacts with firm characteristics, it is valuable to investors who seek to improve their understanding of how CSP relates to financial asset characteristics, and ultimately it is valuable to regulators who seek to improve their understanding of the firms financial incentive to self-regulate on corporate social responsibility issues. This paper presents a cross-sectional analysis comparing environmental, social and corporate governance performance with financial characteristics of 237 Australian firms over the August 1997 to July 2003 period. The analysis allows for some heterogeneity in CSP-financial characteristics relationships related to company size, trading history and industry, which provides valuable additional information on such relationships. Findings indicate that the financial incentive to self-regulate on environmental criteria is weak and contingent on industry. The financial incentive to self-regulate on social criteria is marginally stronger and less contingent on industry. The financial incentive to self-regulate on governance criteria is very strong across the board, though it is particularly strong within the banking, diversified financials, insurance and telecommunications industries. This is indicated both by a significant positive association between governance and financial performance and very strong significant negative association between governance and risk. Acknowledgements: The authors are grateful to Corporate Monitor and the Securities Industry Research Centre of Asia-Pacific (SIRCA) for supplying data and support.Corporate environmental performance, corporate social performance, corporate governance performance

Healthcare providers' views on the acceptability of financial incentives for breastfeeding:a qualitative study

BACKGROUND: Despite a gradual increase in breastfeeding rates, overall in the UK there are wide variations, with a trend towards breastfeeding rates at 6–8 weeks remaining below 40% in less affluent areas. While financial incentives have been used with varying success to encourage positive health related behaviour change, there is little research on their use in encouraging breastfeeding. In this paper, we report on healthcare providers’ views around whether using financial incentives in areas with low breastfeeding rates would be acceptable in principle. This research was part of a larger project looking at the development and feasibility testing of a financial incentive scheme for breastfeeding in preparation for a cluster randomised controlled trial. METHODS: Fifty–three healthcare providers were interviewed about their views on financial incentives for breastfeeding. Participants were purposively sampled to include a wide range of experience and roles associated with supporting mothers with infant feeding. Semi-structured individual and group interviews were conducted. Data were analysed thematically drawing on the principles of Framework Analysis. RESULTS: The key theme emerging from healthcare providers’ views on the acceptability of financial incentives for breastfeeding was their possible impact on ‘facilitating or impeding relationships’. Within this theme several additional aspects were discussed: the mother’s relationship with her healthcare provider and services, with her baby and her family, and with the wider community. In addition, a key priority for healthcare providers was that an incentive scheme should not impact negatively on their professional integrity and responsibility towards women. CONCLUSION: Healthcare providers believe that financial incentives could have both positive and negative impacts on a mother’s relationship with her family, baby and healthcare provider. When designing a financial incentive scheme we must take care to minimise the potential negative impacts that have been highlighted, while at the same time recognising the potential positive impacts for women in areas where breastfeeding rates are low

Intermediation and vertical integration

This paper views financial intermediaries as vertically integrated firms. The authors explore how competitive conditions in retail and wholesale funding markets affect the incentive for (upstream) originators and (downstream) fund managers to integrate. The underlying tradeoff in our model is driven by the choice between the production of an illiquid but high yielding loan and a liquid but relatively low yielding bond. The authors find that greater homogeneity among savers has two effects, both of which tend to increase the incentive to form integrated intermediaries. Greater homogeneity both increases competition between independent fund managers and reduces the likelihood of inefficient underinvestment by integrated intermediaries. The authors also find that the incentive to integrate is greater when fund managers have more power in the market for firms' securities.Bank competition ; Bank loans ; Financial institutions

What are the Most Effective Executive Compensation Strategies for Levels not Eligible for Long Term Incentive?

The trend toward incentive-based, long-term compensation has increasingly strengthened as companies seek to align shareholder, management, and executive interests, especially in light of the financial crisis of 2008. Privately held companies face a unique challenge because they are not in a position to easily offer stock options as a means of a long-term incentive plan; although possible, it is both cumbersome and dilutes the owners’ control of the company. We have identified two alternative means of providing incentives to managers and executives: deferred compensation and the use of perquisites. In addition, we provide a closer at look at the impact and efficacy of the trend toward incentive-based pay on employee and business performance

Best Practices in Incentive Compensation from the Perspective of Value-based Management

As a consequence of the recent global financial crisis, the current economic environment emphasized the weak correlation between company performance and the incentives received by the management staff. Therefore, the existence and consistent implementation of best practices regarding the propelling of the management staff through incentives can lead to a tenable company development. The purpose of this article consists in studying existing methods of incentive granting from a value management perspective and in suggesting some alternatives that could be used by companies during a volatile period characterized by financial economic challenges.best practices, incentive granting, value management, economic value added

Recruiting New Teachers to Urban School Districts: What Incentives Will Work

Explores the effectiveness of financial incentives in attracting qualified teachers to low-performing and hard-to-staff schools. Surveys teachers in training on factors in job choices and considers the size of an effective pay incentive and alternatives

Financial and non-financial performance measures and managerial short-term orientation: the interactive effect of performance targets

In this paper, I examine the incentive effects of both performance measures and performance targets and the linkages between these two components of the incentive system. Furthermore, I examine the theoretical claim that non-financial performance measures provide subordinate managers with incentives to be long-term oriented. Finally, I examine the role of risk aversion in setting performance targets. The empirical results show that the short-term orientation of subordinate managers increases (decreases) with the difficulty of financial (non-financial) performance targets but is not related to the use of either financial or non-financial performance measures for incentive purposes. Further, the difficulty of financial (non-financial) performance targets increases with the use of financial (non-financial) performance measures for incentive purposes, which suggests that performance measures have an indirect effect on managerial behavior. Finally, the relationship between the use of performance measures and performance target difficulty is moderated by the risk aversion of the manager. That is, the relationship is less positive the higher the manager’s risk aversion, which implies that superiors take the risk imposed on the manager into account when setting targets.accounting and auditing ;

DebtRank-transparency: Controlling systemic risk in financial networks

Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network metrics (for example DebtRank) of the interbank liability network which is available to Central Banks. With a simple agent based model we show that by increasing transparency by making the DebtRank of individual nodes (banks) visible to all nodes, and by imposing a simple incentive scheme, that reduces interbank borrowing from systemically risky nodes, the systemic risk in the financial network can be drastically reduced. This incentive scheme is an effective regulation mechanism, that does not reduce the efficiency of the financial network, but fosters a more homogeneous distribution of risk within the system in a self-organized critical way. We show that the reduction of systemic risk is to a large extent due to the massive reduction of cascading failures in the transparent system. An implementation of this minimal regulation scheme in real financial networks should be feasible from a technical point of view.Comment: 8 pages, 5 figure