Regulation of Compensation and Systemic Risk: Evidence from the UK

This paper studies the consequences of regulating executive compensation at financial institutions by examining introduction UK Remuneration Code in 2010, which aimed to change decision-making horizon and risk-taking incentives bank executives. We find that, although both banks nonbanks show increased contribution sensitivity systemic risk United Kingdom post-2010, this increase is lower for banks, line with intent regulation. However, also experience higher unforced CEO turnover when compared other firms. Therefore, while regulation may have had desired effect on risk, it given rise some unintended consequences.