Risk-adjusted compensation framework for bankers

Peter Haenni

13 Mar 2025 — 1 min read

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A risk-adjusted compensation framework for bankers should include the notion of a referential base salary cap, tied to a percentage of the bank's capital reserves.

1. Base Salary e.g. 0.1% tied to Capital Reserves (Eigenkapital)

2. Risk-Adjusted Performance Bonus (30%)

3. Deferred Performance Bonus Compensation (30%)

4. Personal Responsibility for Regulatory Fines and Penalties (15%)

5. Equity Compensation and Stock Options (25%)

6. Clawback and Risk Management Mechanisms

Such a risk-adjusted compensation framework effectively links executive pay to a bank's capital reserves, financial health and risk management practices.

By tying base salary to a percentage (e.g. 0.1%) of the capital reserves, it ensures that compensation remains aligned with the bank’s financial stability, discourages excessive risk-taking and promotes long-term value creation.

Additionally, personal responsibility for regulatory fines and clawback provisions ensure that executives are accountable for their actions, further enhancing governance and risk management practices within the institution.

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