A Study Of The Financial Intervention And Commercial Bank Pay Levels And Default Risk

After the2008financial crisis, executive compensation of the commercial banks hasaroused the concern of all sectors, and governments have also introduced policies toregulate bankers ’ pay. This article is trying to carry out a study on commercial banks payfrom a risk point of view in such a context with the16listed commercial banks in Chinaas the sample. By comparison with international big banks, this paper found that there isroom for growth for Chinese commercial banks pay levels. Joint-stock commercial bankscurrently pay the highest levels. Generally speaking, Chinese commercial banksestablished a combination of fixed salary and performance pay incentive mechanism, butmost banks pay a relatively low percentage of performance remuneration. Incentives basedon the equity value and long-term incentive plan are rarely implemented both inmanagement and general staff.An empirical research based on panel data model for the executive pay level’s impacton banks’ default risk finds that executive compensation levels affect bank default risk in anonlinear way-“inverted u-shaped”, and executive compensation levels have a largerimpact on state-owned commercial banks’ default risk than on joint-stock or citycommercial banks. In addition, overall compensation costs, as the bank’s important humancapital costs, the higher the level is, the larger impact it will be on banks ’ default risk. Butthis conclusion does not imply that a lower compensation cost is always good, banksshould try to improve operating efficiency, so as to improve the efficiency of humancapital. On the basis of analyzing the direct remuneration and indirect capital adequacylimit, this article recommends regulators should strengthen the supervision on bankingremuneration and broaden the scope of intervention. Intervention on pay structures shouldbe strengthened in particular and long term incentives and incentive based on stock valueshould be increased.