Remuneration of top executives has recently attracted special attention, notably in the financial sector, where the distribution of sizeable severance payments, entirely disconnected from the institutions’ performance, has caused a public outcry. Moreover, the financial crisis has revealed that inappropriately designed compensation mechanisms could lead to excessive risk-taking and should therefore be subject to policy intervention.
The Principles for Sound Compensation Practices elaborated by the FSB has been a crucial step forward in this regard. Input from academia will be essential to refine this framework. In this respect, the emphasis in the Squam Lake Report on executive compensation is of interest, especially as it concerns an area which has not yet been fully addressed at the international level 9.