This can be achieved by requiring bonus payouts to be deferred for a period (“deferral”) and subsequently not paid out if performance is poor (“malus”) or clawed back after payment. If deferral periods broadly match the duration of a typical risk cycle, incentives to risk-shift through time are likely to be significantly reduced. Incentives to act in a shorttermist fashion should also be reduced. These proposals have an element of back to the future about them too. Deferral and clawback in some respects mimic 19th century company practices, when shareholders and managers remained liable for losses that occurred on their watch, even after they had sold their stake. Recently, these ideas have been resurrected in some countries, at least for banking firms. For example, CRD IV in Europe requires that the variable portion of senior bank executives’ pay be deferred for 3–5 years. Last July, the Bank of England consulted on a minimum deferral and clawback period of 7 years for Senior Managers and earlier this year these proposals were finalised. These rules now allow for clawback of up to ten years from award, providing a material incentive to reduce excessive risk taking by executives. 24 In finance, you generally reap the risks you sow over that horizon. This new policy aligns risks and horizons. 22  Bennett, Güntay, and Unal (2012). 23  See Bailey (2014) for further details. 24  The PRA and FCA published their Policy Statement, ‘Strengthening the alignment of risk and reward: new remuneration rules’ in June 2015, available at: http://www.bankofengland.co.uk/pra/Documents/publications/ps/2015/ps1215.pdf.
As a result, they have been, and probably still are, able to increase production to a fairly large extent without any substantial increase in real capital and employment. There are prospects of solid growth in productivity in 2004. Nevertheless, our regional network reports that companies in a number of industries are now considering an increase in employment. After rising sharply for several quarters, economic growth in the US slowed in the second quarter and employment growth appears to have stalled this summer. Economic growth has picked up from a low level in the euro area. Economic growth has also gained momentum in Sweden and the UK. Strong growth in the US and China exerted upward pressure on commodity prices in 2003 and the beginning of 2004. Since then, price inflation has been dampened. Oil prices have risen considerably during the summer. Interest rate expectations indicate interest rate increases in a number of countries. The effects of oil price developments on the Norwegian economy are mixed. Persistently higher oil prices may eventually contribute to higher petroleum investment and increased activity in sectors affected by petroleum activities. A sharp rise in oil prices, however, restrains global economic growth and affects demand for our other export products. The analyses in Norges Bank’s last Inflation Report in July 2004 are based on the technical assumption that interest rates will move in line with forward interest rates.