Codes of ethics and regulating remuneration in banks

Filed under - Financial markets

Published on 21 March 2014 as a TI Helpdesk answer
Please provide us with examples of countries that a) force banks to have a code of ethics and, if so, with what successes, and b) have mechanisms to limit salary gaps between senior and junior employees.

Content

1. Background on reforms following the financial crisis
2. Codes of ethics in the banking sector
3. Remuneration policies in the banking sector
4. References

Summary

Following the 2007/2008 financial crisis, governments have carried out a variety of regulatory reforms aimed at curbing risky behaviour in the banking sector and preventing future crises. Nested within corporate governance initiatives are regulations on codes of ethics and remuneration policies that set standards and limits for executive compensation. Such measures aim at aligning the interest of bankers with those of shareholders and the market overall.

In terms of existing regulation, there are few countries that mandate the adoption of codes of ethics for publicly listed companies, including banks. In most cases the adoption of a code of ethics is voluntary, as in the case in the UK, Colombia, South Africa and Japan.

In contrast, there have been many national and international initiatives to curb what is deemed “excessive” executive compensation. The mechanisms vary from establishing a fixed pay ratio between CEOs and average workers, to setting caps on bonuses and giving shareholders a “say on pay”. While generating popular support, these initiatives have been criticised for being allegedly too arbitrary and having unintended consequences.

Author(s): Samira Lindner, Transparency International, [email protected]
Reviewed by: Marie Chéne, Susan Coté-Freeman, Robin Hodess, Transparency International; Carl Dolan, Transparency International EU Office
Publication date: 21 March 2014
Number: 2014

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Country / Territory - International   
Region - Global   
Language(s) - English   
Topic - Financial markets   |   Private sector   
Tags - Financial crisis   |   Dodd-Frank Act   |   banking   |   Code of Conduct   |   Bonuses   

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