NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Using Deferred Compensation to Strengthen the Ethicsof Financial Regulation

Edward J. Kane

NBER Working Paper No. 8399
Issued in July 2001
NBER Program(s):   CF

Defects in the corporate governance of government-owned enterprises tempt opportunistic officials to breach duties of public stewardship. Corporate-governance theory suggests that incentive-based deferred compensation could intensify the force that common-law duties actually exert on regulatory managers. In principle, a forfeitable fund of deferred compensation could be combined with provisions for measuring, verifying, and rewarding multiperiod performance to make top regulators accountable for maximizing the long-run net social benefits their enterprise produces. Because government deposit-insurance enterprises are purveyors of credit enhancements for which private substitute and reinsurance markets exist, their performance could be measured accurately enough to make employment contracts for deposit-insurance CEOs a promising place to experiment with this kind of accountability reform.

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Document Object Identifier (DOI): 10.3386/w8399

Published: Kane, Edward J. "Using Deferred Compensation To Strengthen The Ethics Of Financial Regulation," Journal of Banking and Finance, 2002, v26(9,Sep), 1919-1933. citation courtesy of

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