Executive remuneration in financial firms – Driving behaviour and shaping culture

Longjie Lu

Chapter 4 in Corporate Governance and Culture in Financial Institutions, 2025, pp 112-142 from Edward Elgar Publishing

Abstract: The role of executive remuneration is in a transitional process from a corporate governance tool for shareholder value maximisation to a quasi-regulatory mechanism for achieving broader economic and societal goals. In the financial sector, this transition is pushed forward by the mandatory regulation of executive remuneration aimed at promoting financial stability and the increasing trend of linking executive remuneration with sustainability goals. By defining economic and societal goals as the performance targets in executive remuneration, they are incorporated into executives’ economic calculation of personal interests. When the alignment with economic and societal goals requires executives to make more efforts to maximise their remuneration, they are motivated to explore alternative, cheaper methods, which may not benefit the economy and society. Therefore, regulators should be very cautious about the ineffectiveness and counterproductive effects of executive remuneration as a driver of behavioural changes and cultural shifts.

Keywords: Executive remuneration; Financial institution; Regulation; Prudential risk-taking; Sustainability (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035317899
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