In particular, when designing compensation policies, banks should take into account a number of issues: the variable portion of the compensation of risk takers must be paid on the basis of individual, business-unit and firm-wide measures that adequately assess risk-adjusted performance; bonuses must reward the achievement of stable earnings, not simply the fruit of extraordinary operations; executives’ severance packages too must be clearly and effectively bound to the results attained, and reflect a more general evaluation of the manager’s performance; compensation must be deferred long enough to validate the true quality of management.
The debate that has started with the so-called Volcker rule on the organizational structure of banks and the need to separate traditional credit business from activity in the financial field has been reinvigorated at a European level by the reports of the Vickers Commission in the United Kingdom and the Liikanen Group for the whole European Union.