An interesting piece has been put out by Sandra Kilhof in World Finance (November-December, 2014), that identifies potential un-intended consequences of the EU pay cap upon banks. According to Kilhof in a piece entitled EU pay-cap is hurting banks risk management, the setting of compensation in banks is impacting the ability to recruit and retain senior risk managers and compliance professionals, sorely needed these days.
Kilhof argues that bank compensation plans now effectively take into account poor performance and points to recent research completed by Mercer indicating that banks are increasingly strengthening the link between compensation and performance. However, with the arrival of CRD IV rules, Kilhof argues that a significant portion of banker pay has become fixed, mitigating the strength of the pay-for-performance link, notably for senior risk overseers and compliance savvy managers required in today's regulatory focussed environment. Are these pay caps a good control feature over incentives or have they removed the important pay-for-performance link?
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