This paper includes 3 academic journals to show the studies conducted in proving that the flawed structure of compensation has led to the collapse of banks. It can be inferred from those papers that the author are pointing to the flawed structure as one of the leading causes of the banks’ failure…
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Following the deregulation, the regulation of the compensation of bank and financial institution employees has also been out-grasped to allow competitiveness within the industry and against the non-banking institutions. Hence, high compensations including bonus and incentives have been implemented by the banks as implemented by bank executives.
Deregulation was expected to affect financial performance and risk of the banking institutions (Mahon and Murray, 1981). The primary purpose of the deregulation is to allow competitiveness among the banks competitive by enlarging the range of allowed contracts. However, the flawed executive compensation schemes have been blamed for the unexpected failure of several banking institutions. Such deregulation allowed banking institutions to merge with other banks. The 3 academic journals reviewed are the following:
3) Bank CEO Pay-Performance Relations and the Effects of Deregulation written by Anthony J. Crawford of University of Montana, John R. Ezzell and James A. Miles who are both from Pennsylvania State University.
The writer would like to delve on the takes of the above-cited writers which could probably be the factors that caused the downfall of many of the banks in the United States. The first academic paper was written by Harjoto and Mullineaux (2003). Their paper was entitled CEO Compensation and the Transforming of Banking. In the said paper, it was revealed that the incomparable high compensation of bank executives is mostly attributed to the passage of law on deregulation and the signing of the then U.S. President Clinton of the Gramm-Leach-Bliley Financial Modernization Act in the 1990s which revoked the restriction against the merger of commercial and investment banks, many commercial banks were pressured to adopt compensation policies of investment banks which provide higher compensation than the former banks.
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