the Prudential Regulation Authority (BoE) has warned that poorly designed banker bonus clawbacks could actually be encouraging risk-taking and short-termism. The bank is presently pioneering the use of bonus clawbacks, under which bankers are asked to pay back their bonuses if certain circumstances materialise at a future date. In explaining its views further, the bank said that “a well-designed remuneration regulation should lead the executives to believe that they will be penalised proportionately for losses that occurred because of their poor risk management, but not for losses that occurred in spite of risk management.”
The Bank of England (BoE) has warned that poorly designed banker bonus clawbacks could actually be encouraging risk-taking and short-termism. The bank is presently pioneering the use of bonus clawbacks, under which bankers are asked to pay back their bonuses if certain circumstances materialise at a future date. In explaining its views further, the bank said that “a well-designed remuneration regulation should lead the executives to believe that they will be penalised proportionately for losses that occurred because of their poor risk management, but not for losses that occurred in spite of risk management.”