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Remuneration for Bank Executives

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Remuneration for Bank Executives Remuneration for bank execu- tives A study on the impacts of corporate governance codes on executive re- muneration in Sweden, Denmark and the United Kingdom between 2004 and 2010 Degree Project within Business Administration Author: Andreas Klang and Niclas Kristoferson Tutor: Assoc. Prof. Dr. Dr. Petra Inwinkl Jönköping May 2011 Acknowledgements The process of this degree project, would not have been what it is without a number of people whom have contributed and played a part in shaping it to what it is today We would like to thank our tutor Assoc. Prof. Dr. Dr. Petra Inwinkl for herr advice and guidance throughout the process of the whole thesis. This thesis would not have been the same without her influential ideas and constructive criticism. We would also like to thank our seminare partners for their constructive feedback dur- ing all seminars. At last we would like to thank our families and girlfriends whom have endure us during the past six months with constant support and love. Andreas Klang Niclas Kristoferson Division of work The authors of the Remuneration for bank executives, a study on the impacts of corporate go- vernance codes on executive remuneration in Sweden, Denmark and the United Kingdom be- tween 2004 and 2010 are Andreas Klang and Niclas Kristoferson. Andreas Klang have done fif- ty per cent and Niclas Kristoferson have done fifty per cent. Degree Project within Business Administration Title: Remuneration for Bank Executive- A study on the impacts of corporate governance on executive remuneration Author: Andreas Klang and Niclas Kristoferson Tutor: Assoc. Prof. Dr. Dr. Petra Inwinkl Date: May 2011 Subject terms: Remuneration policies, corporate governance, bank executive, Sweden, Denmark and United Kingdom Abstract In 2007, the world witnessed the preface of what was to become the worst global finan- cial crisis in decades. Both during, and in the aftermaths of the crisis, the factors causing it have been a matter of widespread discussions. The banking sector has faced much of the blame because of excessive risk-taking, especially within the US subprime mortgage market. Though there are many inputs to consider, bank remuneration policies have been subject to much discussion, and is in many cases believed to be structured in a way that encourages an unsound perspective on risk taking. This thesis aims at observing the remuneration policies, and the development of these, within nine banks during the time period of 2004-2010. In order to investigate whether there can be found national patterns in the setting of remuneration policies, we have chosen to observe three banks from Sweden, Denmark and The United Kingdom re- spectively. Different input factors are used in order to analyze the remuneration poli- cies; the possible influence of applicable corporate governance codes, statements on re- muneration policies in annual reports, actual awarded remuneration and firm perfor- mance measured in terms of net profits. We have concluded that most banks of the study have faced a development in remunera- tion policies during the observed time period. The consistent tendency seems to be to put less focus on short-term incentive schemes and stock option programs. There exist some national patterns concerning the policies on remuneration; however they seem li- mited to the amount of variable remuneration awarded. The effect of the development of the national corporate governance codes on the setting of remuneration policies seems to be limited. We cannot find any evidence showing that the banks within any nation have performed better than the ones of another nation, measured in terms of stability of net profits. However, one individual bank, Swedish Nordea, outperforms the rest. As the bank is distinguishing itself from the rest of the banks concerning the remuneration policy, focusing on risk-adjusted-, financial as well as non-financial measures when granting performance related remuneration, we believe the remuneration policy to be an input factor leading to this performance. Table of Contents Division of work ......................................................................... ii Abbreviations ............................................................................ iv 1 Introduction .......................................................................... 1 1.1 Background ................................................................................... 1 1.2 Outline of the degree project ......................................................... 3 1.3 Banks ............................................................................................ 4 1.3.1 Comparison of the banks .................................................... 4 1.3.2 In Sweden ........................................................................... 5 1.3.2.1 Nordea ............................................................................................................... 5 1.3.2.2 Swedbank .......................................................................................................... 7 1.3.2.3 SEB .................................................................................................................... 6 1.3.3 Denmark ............................................................................. 7 1.3.3.1 Danske Bank ...................................................................................................... 7 1.3.3.2 Jyske Bank ......................................................................................................... 8 1.3.3.3 Sydbank ............................................................................................................. 8 1.3.4 The United Kingdom ........................................................... 9 1.3.4.1 Barclays ............................................................................................................. 9 1.3.4.2 HSBC ............................................................................................................... 10 1.3.4.3 RBS .................................................................................................................. 11 1.4 Problem discussion ..................................................................... 11 1.5 Research question ...................................................................... 12 1.6 Purpose ....................................................................................... 13 1.7 Delimitations ................................................................................ 13 2 Method ................................................................................ 14 2.1 Research strategy ....................................................................... 14 2.2 Qualitative and quantitative data ................................................. 14 2.3 Choice of research method ......................................................... 15 2.3.1 Method of choosing banks ................................................ 15 2.3.2 Data collection .................................................................. 15 2.3.3 Data processing ................................................................ 16 3 Literature review ................................................................. 18 4 Frame of reference ............................................................. 20 4.1 Corporate governance ................................................................. 20 4.2 Agency theory ............................................................................. 21 4.3 Corporate governance codes ...................................................... 22 4.3.1 In Sweden ......................................................................... 22 4.3.1.1 Corporate governance in Sweden .................................................................... 22 4.3.1.2 The Swedish code on corporate governance .................................................... 23 4.3.1.3 Significant deviations from previous code ...................................................... 25 4.3.2 In Denmark ....................................................................... 26 4.3.2.1 Effects of the Danish board system ................................................................. 27 4.3.2.2 The Danish recommendations on corporate governance ................................ 27 4.3.2.3 Significant deviations from previous code ...................................................... 29 4.3.3 In the United Kingdom ...................................................... 30 4.3.3.1 The Financial reporting council ...................................................................... 30 4.3.3.2 The UK corporate governance code ................................................................. 31 4.3.3.3 Significant deviations from previous code ...................................................... 34 5 Empirical findings .............................................................. 37 i 5.1 Remuneration policies ................................................................. 37 5.1.1 Sweden ............................................................................. 37 5.1.1.1 Nordea ............................................................................................................. 37 5.1.1.2 SEB .................................................................................................................. 38 5.1.1.3 Swedbank ........................................................................................................ 39 5.1.2 Denmark ..........................................................................
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