The Shaping of Bank Incentive Structures by Strategic Factors Relating to the Drivers of Long-term Value Creation and Sustainability: A Stakeholder Perspective

Abstract

The role of bankers’ perverse incentives in contributing to the global financial crisis that started in 2007 has increased the need for empirical evidence on the efficacy of bank incentive structures to adequately align the interests of stakeholders. This qualitative study investigated the bonus phenomenon, targeting the financial services industry, and explored what the drivers are for sustainable value creation from the perspective of bank employee stakeholders who contribute to such value creation. The study presented the following strategic factors which enhance the efficacy of a bank incentive structure: (1) the alignment of incentives structures with the long-term objectives of the firm; (2) defining the governing objective of incentive structures as maximization of the long-term value of the firm; (3) risk-adjustment of incentive structures; and (4) alignment of incentive structures with the interests of all relevant stakeholders.