Executive Compensation in Imperfect Financial Markets

Jay Cullen, Head of Department of Law and Criminology, Edge Hill University, UK

• Contents: 1. Introduction 2. An Analysis of the Role of Executive Compensation 3. Theories of Securities Market Operation: Principles and Flaws 4. Minsky and the Financial Instability Hypothesis: Implications for Market Efficiency 5. The Global Financial Crisis and the Complex Relationship between Asset Prices, Leverage, and Financial Instability 6. Post-Crisis Reform to Executive Compensation at Financial Institutions 7. Reconstituting Executive Compensation at Financial Institutions: Proposals for Reform 8. Conclusions Index

'Jay Cullen's important book challenges the conventional wisdom that financial corporations will automatically further the public good as long as senior managers' pay is aligned with the share price. Drawing on behavioural finance and Minskyan economics, Cullen shows that flawed market pricing can cause, and result from, excessive risk-taking. As seen most recently in the financial crisis, these practices leads to enormous social costs, yet regulators face considerable pressure not to intervene in these market outcomes. The inclusion of an overview of recent regulation in this fast-moving area, as well as further suggestions for reform, makes this lucid and topical book essential reading for researchers and policy-makers in the field of corporate governance.'--Andrew Johnston, School of Law, University of Sheffield, UK'So much work on executive remuneration has looked at the specifics of executive compensation schemes without raising fundamental questions about capital markets' ability to price companies properly. This book has come to close this gap. With crisp and informed analysis of capital market dysfunctionalities, Dr Cullen's book brings an entirely new perspective on how to fix a broken system. Corporate boards, lawyers, and economists should all take stock of Cullen's argument.'--Emilios Avgouleas, University of Edinburgh, UK'Cullen's timely and important book demonstrates exactly what the problem is with executive compensation in banking and how to improve it. The current populist approach to simply cut banker pay is rejected in favour of a far more nuanced approach, fully cognizant of the inefficiencies in the very markets which value bonus share awards. The book encourages a much-needed long-term approach to compensation whilst also examining in an intelligent way the flaws in our seemingly efficient markets.'--Trevor Pugh, Head of Sterling Trading, HSBC