Virtus InterPress

CSR and compensation practices in banking practice

PROJECT TITLE EXECUTIVE COMPENSATION AND CORPORATE SOCIAL RESPONSIBILITY IN BANKS

THE PROJECT ORIGIN The project became a continuation of the long collaboration between the researchers from the International Center for Banking and Corporate Governance and Professor Udo Braendle from the American University in Dubai.

THE PROJECT CONTENT The economic crisis has exposed huge flaws in the modern financial system. One of them is connected with compensation practices to the directors of the board in banks. The debatable areas here are as following: compliance of the compensation practices with social expectations and regulation of this sphere in different countries. Recently the system of banks’ compensation practices threatens to undermine confidence in the banking system and cause a new wave of banking crises. The wave of public indignation concerning disproportionately high level of bankers’ income forced governments of several countries to limit the size of bank bonuses and make them dependent from the bank performance. However, such restrictions are meaningful only if they operate on an international level. Despite the crisis and the need to reduce costs, many banks were not going to save money on payment to their governance staff. Bank authorities treat such practices as means of keeping and motivating valuable professionals. It is noteworthy that such a concern for employees is typical, especially for large banks that have received solid crisis rescue packages from budget funds. Banking managers made unacceptably high risky operations that led to catastrophic financial consequences. Such managerial actions in most cases were supported and even encouraged by shareholders. At the same time the majority of large and prosperous banks publicly stated their compliance with the concept of corporate social responsibility. The problem of banks’ compensation schemes raised many questions about social concerns of the banks in crisis and post crisis period, that requires synergetic reaction from the responsible bodies an on the national so on the international levels of financial regulation.

THE PROJECT AIMS This project aims are to study situation with executive remuneration in banks before and after the crisis and find out how compensation strategies correlated and correlates with their CSR activity.

THE PROJECT’S STAGES The first section of the paper is represented by the introduction and literature review. The second section should contain an overview of the executive compensation practices in banks before the crisis; make an analysis of the dynamics of the main financial indicators. The third section will contain post crisis description of the changes in the executive compensation in banks, also influenced by regulative measures. The fourth part will analyze how CSR activity and views of the banks corresponded with their remuneration practices. The fifth section consists of the conclusions and further research outline.

THE PROJECT OUTCOME Results of the joint research are planned to be presented on the scientific conferences in Germany (Nuremberg) in September 2014.

THE PROJECT TEAM Udo Braendle (UAE); Alex Kostyuk (Ukraine); Yaroslav Mozghovyi (Ukraine)

CONTACT PERSONS Udo Braendle, Ph.D., Chair of Business and Economics and Associate Professor of Management, American University in Dubai, UAE (e-mail: ubraendle[at]aud.edu) Yaroslav Mozghovyi, PhD researcher, International Center for Banking and Corporate Governance, Ukrainian Academy of Banking of the National Bank of Ukraine (Ukraine) (e-mail: mozghovyi[at]virtusinterpress.org)

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