Executive pay

Are executives paid too much? This video looks into this controversial topic.

The video discussed the case of Stephane Bancel. Another good example of the disjoint between public sentiment and economic reality is the issue of bankers bonuses.

Source: The Guardian

In September 2022, the UK announced an intention to remove the “bankers bonus cap”, which is an EU rule that restricted bonuses to no more than 100% of basic pay (or 200% with shareholders approval). Ending the cap was a highly unpopular decision, but from an economic perspective the cap was suboptimal because it causes base pay to be higher, and removes flexibility. Without a cap, extra pay is high in good times but (relatively) low in bad times. A cap reduces the link between performance and pay.

If bonus caps helped to reduce inequality or reduced risk taking across the industry (which can have harmful social costs) then it might be a good idea. But the bonus cap:

  • Isn’t taxpayer funded and doesn’t contribute to inequality
  • Isn’t an important tool to reduce risk taking across the industry

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