En retsøkonomisk analyse og vurdering af den variable aflønning i den finansielle sektor

Kennie Dyreborg-Kragh & Jonas Rasmussen

Student thesis: Master thesis

Abstract

Since the beginning of the financial crisis in 2008, performance-related pay has been one of the main emphases of the financial sector worldwide. This thesis focuses on the performance-related payment schemes which have been present in the Danish financial sector since the beginning of the crisis. The newest action taken by the financial sector has been to pass the new Capital Requirements Directive (CRD III). The new legislation includes both the limits to maximum performance-related pay as well as the requirement to publish specific details of the payment to a significantly larger degree than before. This thesis therefore investigates the implementation of the CRD III into Danish law and finds that the new legislation strengthens the existing law, but is often vague. This thesis also finds that it is not possible at this time to know whether the limitation of the performance-related pay is set to the correct level. Using the Principal-Agent Theory, this thesis establishes that the management can often have incentive problems when managing companies. It is then alternatively explored that aligning the incentives of the company with the incentives of the employees might be just as effective as performance-related pay, which has been traditionally used to solve this problem. Finally, this thesis focuses on the companies which have had notoriously poor performance during this financial crisis. Therefore, the performance of these companies, which were transferred to Finansiel Stabilitet, are compared to a control group of financial companies in order to investigate whether performance-related pay differed between the two groups. The tests show that, percentagewise, the performance-related pay has been statistically the same on average for the two groups. The tests also show that the companies under Finansiel Stabilitet had given a much more varied performance-related pay to their management. In a second test it was concluded that the stock rate for the companies under Finansiel Stabiliet, was more volatile than that of the control group. Which leads to the conclusion that the management of the companies under Finansiel Stabilitet are believed to be taking greater risks due to extensive performance-related pay, which, in turn, has influenced the performance of the company negatively.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2011
Number of pages143