Uniform regulation of executive pay at banks: Will it make a difference? The case study of Poland

Abstract

The executive remuneration system in the financial sector requires significant improvements to increase disclosure and more closely converge shareholders’ and depositors’ interests. Executive remuneration practices have, therefore, been under review since the financial crisis of 2008. The purpose of the article is to examine how much the current practices of bank executive compensation in Poland differ from the recommendations issued by international organisations. The question is whether the new legal rules will have a significant impact on bank executive remuneration in Poland and will help solve corporate governance problem. The analyses based on the sample of listed banks show that new regulation effective as of 1 January 2012 is to force changes in the approach to executive remuneration in the banking sector. Firstly, banks will be obliged to adapt to the more rigorous requirements regarding disclosure of executive remuneration policy and its structure. Secondly, the long-term incentive programmes will become more important because of the need to defer a large part of the variable compensation and to use instruments other than cash. However, they may pursue a more conservative compensation policy. This could mean a further increase in basic salary, and it may limit sensitivity between pay and corporate performance and also increase fixed costs for banks. Ultimately, the new Polish regulation that refers almost exclusively to the variable component of executive remuneration will have negligible impact. This shows that uniform regulation regardless of a country's institutional framework may have adverse impact and fail to solve the original problem of corporate governance: the weak linkage between executive remuneration and corporate performance. The findings will be relevant for both academics and practitioners, in particular policy-makers.