The Bank for International Settlements published an analysis of executive compensation at 73 U.S. and European banks, finding that longer deferral periods are associated with lower risk and more prudent capital management. Its assessment of regulatory changes indicates that European Union requirements extending deferral periods reduced risk, while evidence on caps limiting variable compensation remains inconclusive. Compensation practices continue to vary because jurisdictions have implemented global standards differently. The analysis also finds that banks rarely adjust executive performance measures for risk. Return on equity, which can reward greater leverage, remains a leading metric, while measures accounting for the cost of capital and other risks receive little weight. A case study of the 2023 banking turmoil found that failed banks were not outliers in their use of deferrals. Rather, governance failed to ensure that compensation reflected risk and deteriorating performance, underscoring the oversight responsibilities of boards and supervisors.
2026-09-14Bank for International Settlements
Bank for International Settlements finds longer executive pay deferrals reduce bank risk while evidence on bonus caps remains inconclusive
The Bank for International Settlements found that longer executive pay deferrals reduce bank risk and support more prudent capital management, while evidence on bonus caps remains inconclusive. Banks still rely heavily on performance measures that do not account for risk. Governance failures during the 2023 banking turmoil weakened the effectiveness of otherwise conventional compensation structures.