This chapter investigates the practice of bankers’ remuneration in the UK after the GFC and analyses the effectiveness of the regulatory initiatives. To track the changes, the investigation is also based on the UK ‘Big Four’ banks. It is found that the focus of performance-based remuneration has shifted from short-term incentives to long-term incentives. Complying with deferral, clawback and malus, the period of performance assessment has been significantly extended. Banks have also adopted risk-adjusted and stability-oriented indicators to link bankers’ remuneration to the sustainability and risk management of banks. However, to circumvent bankers’ bonus cap, banks have introduced role-based pay – a new form of fixed remuneration. Role-based pay is counterproductive, as it may reduce pay-performance sensitivity while encouraging bankers to take excessive risks. This chapter also argues that bankers’ bonus cap is conflicted with other initiatives, the implementation of which relies on performance-based remuneration constituting a significant portion of the total remuneration.

This chapter compares the differences between the UK and China in their regulations and practices of bankers’ remuneration and analyses the institutional reasons for the differences.The problem of bankers’ remuneration in the UK was the distorted market practice. The purpose of the regulation is to correct market failures. Nevertheless, the regulators also intend to keep the balance between regulatory intervention and bank autonomy. In China, the practice of bankers’ remuneration was based on the administrative and politicised approach. The regulation is to guide banks to modernise their remuneration systems. However, it is not effectively implemented, as the state maintains its decisive role. The differences between the two countries are due to the different institutional traditions of their financial systems, as the current regulation and practice of bankers’ remuneration have been profoundly influenced by the traditional model of state–market interaction.

This chapter investigates the pre-GFC practice of bankers’ remuneration in the UK to discover how bankers’ remuneration affected the sustainability of banks. It starts with an overview of executive remuneration in Anglo-American corporate governance, focusing on its role as both a solution to the agency problem and a mechanism for shareholder interest maximisation. This chapter then examines the practice of bankers’ remuneration in the ‘Big Four’ banks of the UK from 2000 to 2007. It is found that performance-based remuneration, which was aimed at aligning bankers’ wealth with shareholder interest, was the primary remuneration component. Stock options and restricted shares were widely used as performance-based remuneration, and financial indicators oriented by short-term profit and shareholder return were the primary metrics of bankers’ performance. As a result, bankers were incentivised to take excessive risks, which eventually contributed to the vulnerability of banks and their failures.

This chapter describes the international and domestic backgrounds related to the regulations and practices of bankers’ remuneration in the UK and China. It provides an overview of the bank failures in the UK during the GFC and the practice of bankers’ remuneration incentives, which was a significant contributing factor to these bank failures. It also summarises the evolution and development of the modern banking system in China and the transitional reform of corporate governance and remuneration incentives in Chinese banks. Based on these backgrounds, this chapter highlights the rationales for the regulations of bankers’ remuneration in the UK and China respectively.

This chapter analyses the regulatory framework of bankers’ remuneration in the UK in response to the problems in the pre-GFC practice. It first summarises the ideological change among regulators and academics with respect to the regulation of bankers’ remuneration and concludes that maintaining financial stability and protecting the public interest are the primary objectives. The chapter then discusses the initiatives implemented by the UK banking regulators, including deferral, clawback, malus and risk-adjusted performance metrics, which are aimed at guiding banks to reform their incentive mechanisms by extending the assessment period of performance assessment and applying risk-adjusted and stability-oriented indicators. It also discusses the EU bankers’ bonus cap and the opposite stance of the UK regulators to its implementation.