Developing “Best Practices” for bankers’ pay in line with Basel III

This paper proposes hybrid capital securities as a significant part of senior bank executive incentive compensation in light of Basel III, a new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision. The committee developed Basel III in a response to the deficiencies in financial regulation brought about by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. The hybrid bank capital securities we propose for bank executives’ compensation are preferred shares and subordinated debt that the June 2004 Basel II regulatory framework recognised as other admissible forms of capital. The past two decades have witnessed dramatic increase in performance-related pay in the banking industry. Stakeholders such as shareholders, debtholders and regulators criticise traditional cash and equity-based compensation for encouraging bank executives’ excessive risk taking and short-termism, which has resulted in the failure of risk management in high profile banks during the global financial crisis. Paying compensation in the form of hybrid bank capital securities may align the interests of executives with those of stakeholders and help banks regain their reputation for prudence after years of aggressive risk-taking. Additionally, banks are desperately seeking to raise capital in order to bolster balance sheets damaged by the ongoing credit crisis. Tapping their own senior employees with large incentive compensation packages may be a viable additional source of capital that is politically acceptable in times of large-scale bailouts of the financial sector and economically wise as it aligns the interests of the executives with the need for a stable financial system.

NATO and the environment: the committee on the challenges of modern society

Launched with considerable fanfare in 1969, the Committee on the Challenges of Modern Society (CCMS) was supposed to bring new life to NATO by both re-energising public support and engaging with a variety of themes, issues and partners well beyond the alliance’s traditional scope. The first aim of this article is to go beyond the careful media operation that surrounded the launch of the CCMS and to examine the scepticism and resistance of some European partners, particularly the British. The second aim is to demonstrate that NATO started to think in terms of crisis management, disaster relief and environmental disasters well before 1989. The sheer military strength of the alliance and of its partners did remain central – and notably came back to the forefront in 1979 – but the alliance did start to see itself as a geopolitical player and to consider engagement beyond its strictly defined geographical area as early as 1969.