Big rewards for taking big risks with other people’s money helped drive the financial industry off a cliff in 2008, according to a new study from the University of New Hampshire.
UNH Professor Brian Bolton and Sanjai Bhagat, a professor at the University of Colorado at Boulder, studied 14 of the nation’s largest financial institutions. In a working paper titled “Bank Executive Compensation and Capital Requirements Reform,” they argue that executives were more concerned with their own payouts than the long-term interests of their shareholders.
The researchers said executive compensation packages that allow executives to sell off significant amounts of vested stock and options give them a strong incentive to work for short-term earnings. They cited one CEO who sold stock on more than 200 days between 2004 and 2006, netting more than $400 million.
