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FINANCIAL INSTITUTION EXECUTIVE COMPENSATION: THE PROBLEM OF FINANCIALLY MOTIVATED EXCESSIVE RISK-TAKING, THE REGULATORY RESPONSE, AND COMMON SENSE SOLUTIONS
U.C. Davis Bus. L.J. (2014)
  • Jesse D Gossett, University of San Francisco
Abstract
This article addresses the issue of executive compensation at financial institutions as it relates to encouraging excessive risk-taking at these firms. First, I examine the economics of compensation and its relationship to risk-taking at financial firms. Next, I take a critical look at compensation provisions of Dodd-Frank (and to a lesser extent, Sarbanes-Oxley) and describe not only what Dodd-Frank does, but more importantly what it does not do. I then make specific recommendations for rules regulators should adopt under Dodd-Frank for the purpose of using compensation plans as a way of reducing excessive risk at financial institutions. I make these recommendation based primarily on my 20 years of experience in financial services and my training as a Chartered Financial Analyst. This article is particularly relevant and timely because Dodd-Frank requires regulators to adopt rules prohibiting compensation plans that encourage excessive risk-taking as a way of reducing the likelihood of another financial meltdown; however, no such rules have been adopted and the financial industry has largely returned to its former ways.
Keywords
  • executive compensation,
  • dodd-frank,
  • financial institution,
  • risk
Publication Date
2014
Citation Information
Jesse D Gossett. "FINANCIAL INSTITUTION EXECUTIVE COMPENSATION: THE PROBLEM OF FINANCIALLY MOTIVATED EXCESSIVE RISK-TAKING, THE REGULATORY RESPONSE, AND COMMON SENSE SOLUTIONS" U.C. Davis Bus. L.J. Vol. 14 (2014)
Available at: http://works.bepress.com/jesse_gossett/1/