US executive pay structures must end risks

The remuneration of US finance executives should be more exposed to the negative consequences of the risks they take.

That is according to the authors of the paper Regulating Bankers' Pay, who suggested that director-level compensation packages in financial corporations are currently insulated from the potential losses that could occur because of executive decisions.

Lucian Bebchuk, director of the corporate governance programme at Harvard Law School, and Holger Spamann, co-executive director of the course, have accepted that tying incentives to long-term performance will not sufficiently prevent risk-taking.

Instead, the two remuneration experts have suggested that banking executives' pay is aligned to a broader range of securities beyond common shares.

Writing for the New York Times, they claimed this would expose director-level staff to the same liabilities as investors and the taxpayer.

They wrote: "Tying executive pay to the aggregate value of common shares, preferred shares and bonds will already produce a significant improvement in incentives compared with existing arrangements."

Last week, companies including Bank of America and Citigroup started restructuring their remuneration policies in line with long-term performance.