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Banker Bonus Cap: Assistant Professor Dr Andreas Kokkinis explores the effects in leading journal
We are delighted to announce that an article, by Assistant Professor Dr Andreas Kokkinis, was published in the prominent Journal of Corporate Law Studies in April 2018.
Exploring the Effects of the ‘Bonus Cap’ Rule: The Impact of Remuneration Structure on Risk-Taking by Bank Managers has been recently published in the Journal of Corporate Law Studies renowned for being the international forum for thorough analysis of corporate, securities and financial law.
The article by Dr Andreas Kokkinis, Assistant Professor at Warwick Law School and part of GLOBE, a research centre within the University of Warwick’s Law School, explores the effects of the bonus cap rule on UK banks’ remuneration practices.
The ‘bonus cap’ is, “a very technical EU law rule which caps the amount of performance-based remuneration that bank senior managers can receive at two times their fixed remuneration.”
In the paper, Dr Kokkinis evaluates the ‘bonus cap’s’ impact on the financial incentives faced by senior managers to make risky business decisions.
He comments: “Previous literature had identified that the ‘bonus cap’ rule is not going to be beneficial for bank shareholders, but this is not enough reason to reject the rule.”
“This is because the rule’s purpose was not to benefit bank shareholders but rather to reduce incentives to take too much risk which goes against the public interest.”
In his article, Dr Kokkinis asks whether the bonus cap is likely to lead to any reduction in risk-taking incentives and explores the question through:
- Mapping the different consequences of the ‘bonus cap’ rule
- Reviewing the way UK banks have responded to the rule
- Investigating how individuals respond to external incentives
The article proposes that the ratio of variable to fixed remuneration is only one of the factors that determine the intensity of financial incentives for UK bank managers to make risky decisions.
Kokkinis states, “the bonus cap rule is a blunt tool that creates some desired outcomes, but also a range of adverse unintended consequences in incentives which may well outweigh its positive effects.”
“It is therefore recommended that the rule be abandoned in favour of more targeted interventions to align bank managers’ incentives with the public interest,” Kokkinis concludes.”
The Centre for Law, Regulation and Governance of the Global Economy (GLOBE) at Warwick Law School, created in 2014, is a research and public engagement centre that brings together staff and postgraduate students working in international economic law, business and commercial law, corporate governance and financial regulation.
The Journal of Corporate Law Studies is an established international forum for thorough analysis of corporate, securities and financial law and vital for not only teaching, research and practice but also regulation, law and policy-making. The broad coverage ranges widely from insolvency to the commercial conflict of laws, directors' duties and financial regulation. It features strong global perspectives, interdisciplinary studies and works in related areas.