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 analyses the regulatory framework of bankers’ remuneration in China. The framework is comprised of the CBRC Guidelines and the MOF Measures. The CBRC Guidelines are based on the FSB principles and standards, aiming to guide banks to apply modern remuneration incentives. The MOF Measures are special for SOCBs and SOE-controlled banks, which contain a series of compulsory rules on the level and structure of remuneration and a detailed system of performance assessment. In addition, the MOF imposed a temporary ban on equity-based remuneration, and the CPC issued a policy to reduce and cap the level of remuneration in these banks. These requirements are intrusive, which consolidate state intervention in the practice of bankers’ remuneration while contradictory to the objective of the regulation-led reform.

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 describes and analyses the traditional way adopted by Chinese banks to manage and incentivise bankers in the context of state ownership and intervention. It provides an overview of the modernisation reform of Chinese banks and argues that the essential factor that contributed to the successful reform was the predominant role of the state. The governance of banks was subject to state intervention, and bankers were identified and managed as state cadres. Therefore, bankers’ remuneration was administratively managed, and bankers were incentivised with the opportunity of political promotion. Reciprocally, the administration of remuneration and political incentives acted as a channel for state intervention in banks. However, this administrative and politicised approach was inconsistent with the principles of modern corporate governance, and reform to push forward the modernisation of bankers’ remuneration was considered necessary.