Using Deferred Compensation to Strengthen the Ethicsof Financial Regulation
Defects in the corporate governance of government-owned enterprises tempt opportunistic officials to breach duties of public stewardship. Corporate-governance theory suggests that incentive-based deferred compensation could intensify the force that common-law duties actually exert on regulatory managers. In principle, a forfeitable fund of deferred compensation could be combined with provisions for measuring, verifying, and rewarding multiperiod performance to make top regulators accountable for maximizing the long-run net social benefits their enterprise produces. Because government deposit-insurance enterprises are purveyors of credit enhancements for which private substitute and reinsurance markets exist, their performance could be measured accurately enough to make employment contracts for deposit-insurance CEOs a promising place to experiment with this kind of accountability reform.
Published Versions
Kane, Edward J. "Using Deferred Compensation To Strengthen The Ethics Of Financial Regulation," Journal of Banking and Finance, 2002, v26(9,Sep), 1919-1933. citation courtesy of