Market or State: The Regulation and Practice of Bankers' Remuneration in the UK and China

402 Pages·2022·3.416 MB·English

by  Longjie Lu

MARKET OR STATE
Thisbookinvestigatesthepre-crisispracticeofbankers’remunerationin
the UK to provide evidence of the problems in practice. It critically
analysestheregulatoryinitiativesimplementedafterthecrisisandinvesti-
gates the post-crisis practice to reflect the effects and problems of the
regulation. The book also discusses the traditional administration of
remunerationandpoliticalincentivesinChinesebanksandtheregulatory
initiativesforreformingbankers’remuneration.Itinvestigatestherecent
practicesinmajorChinesebankstorevealtheproblemsoftheregulatory
initiatives and the impact of political incentives. It will help academics,
researchers, students and practitioners develop a comprehensive under-
standingoftheongoingreformofbankers’remunerationintheUKand
the uniqueness of banks’ remuneration systems and incentive mechan-
isms in China. Furthermore, it provides theoretical insights into the
differencesbetweenthetwojurisdictionsintheirregulationsandpractices
andthedeep-seatedreasonsforthedifferences.
DrLongjieLuisalecturerinbanking,corporateandfinanciallawatthe
University ofEdinburgh. Her articlesin thewider fieldsofbanking and
financial regulation, capital markets law and corporate governance have
been published by leading journals such as Journal of Corporate Law
Studies,CapitalMarketsLawJournalandJournalofBusinessLaw.
Published online by Cambridge University Press
Published online by Cambridge University Press
MARKET OR STATE
’
The Regulation and Practice of Bankers Remuneration
in the UK and China
LONGJIE LU
UniversityofEdinburgh
Published online by Cambridge University Press
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www.cambridge.org
Informationonthistitle:www.cambridge.org/9781316513965
DOI:10.1017/9781009076401
©LongjieLu2022
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andtotheprovisionsofrelevantcollectivelicensingagreements,
noreproductionofanypartmaytakeplacewithoutthewritten
permissionofCambridgeUniversityPress.
Firstpublished2022
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
LibraryofCongressCataloging-in-PublicationData
Names:Lu,Longjie,1988-author.
Title:Marketorstate:theregulationandpracticeofbankers’remunerationintheUKandChina/
LongjieLu,UniversityofEdinburgh.
Description:Cambridge,UnitedKingdom;NewYork,NY:CambridgeUniversity,2022.|Based
onauthor’sthesis(dissertation-UniversityofLeeds,2018)issuedundertitle:Theregulationof
bankers’remuneration:acomparativestudybetweentheUKandChina.|Includesbibliographical
referencesandindex.
Identifiers:LCCN2022009057(print)|LCCN2022009058(ebook)|ISBN9781316513965
(hardback)|ISBN9781009077026(paperback)|ISBN9781009076401(epub)
Subjects:LCSH:Bankers–Salaries,etc.–Lawandlegislation–China.|Bankers–Salaries,etc.–Law
andlegislation–GreatBritain.
Classification:LCCK1066.L8562022(print)|LCCK1066(ebook)|DDC346/.082–dc23/eng/
20220531
LCrecordavailableathttps://lccn.loc.gov/2022009057
LCebookrecordavailableathttps://lccn.loc.gov/2022009058
ISBN978-1-316-51396-5Hardback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracy
ofURLsforexternalorthird-partyinternetwebsitesreferredtointhispublication
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Published online by Cambridge University Press
To my mum
Published online by Cambridge University Press
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CONTENTS
List of Figures xi
List of Tables xiii
Preface xv
List of Abbreviations xviii
1 Introduction 1
1.1 TheGlobalFinancialCrisis(GFC)andBankers’
Remuneration 1
1.2 BankFailuresintheUK 2
1.3 BankingSystemandBankers’RemunerationinChina 5
1.4 ResearchObjectivesandStructureoftheBook 8
2 The Pre-GFC Practice of Bankers’ Remuneration in
the UK 10
2.1 Introduction 10
2.2 TheRoleofExecutiveRemuneration 10
2.3 ThePre-GFCPracticeofBankers’RemunerationinMajor
UKBanks 12
2.3.1 RemunerationLevel 13
2.3.2 RemunerationComponentsandStructure 17
2.3.2.1 RemunerationComponents 17
2.3.2.2 RemunerationStructure 21
2.3.3 IncentiveMechanism 25
2.4 TheImpactofBankers’Remuneration 30
2.4.1 ShareholderandManagerialShort-Termism 31
2.4.2 ExcessiveRisk-TakinginBanks 33
2.5 Conclusion 37
3 The Regulation of Bankers’ Remuneration
in the UK 39
3.1 Introduction 39
3.2 TheJustificationforRegulatingBankers’Remuneration 40
3.3 BankingRegulatoryReformsintheUK 42
vii
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viii 
3.4 TheRegulatoryInitiativesofBankers’Remuneration 45
3.4.1 Bankers’BonusCap 48
3.4.1.1 TheProposalsattheEarlyStage 49
3.4.1.2 TheEULegislationandItsImplementationin
theUK 50
3.4.1.3 TheUK’sRejectionoftheExtensionofBankers’
BonusCap 52
3.4.2 Long-TermIncentives 54
3.4.2.1 Deferral 54
3.4.2.2 Clawbackandmalus 57
3.4.3 Risk-AdjustedPerformanceMetrics 60
3.5 Conclusion 62
4 The Post-GFC Practice of Bankers’ Remuneration in
the UK 64
4.1 Introduction 64
4.2 ChangesinthePracticeofBankers’Remuneration 64
4.2.1 RemunerationLevel 65
4.2.2 RemunerationComponentsandStructure 67
4.2.2.1 RemunerationComponents 67
4.2.2.2 RemunerationStructure 70
4.2.3 IncentiveMechanism 73
4.2.3.1 ChangesinthePeriodof
PerformanceAssessment 74
4.2.3.2 ChangesinPerformanceMetrics 77
4.3 AReflectionontheRegulation:TheProblemwithBankers’
BonusCap 80
4.3.1 TheUK’sLegalChallengeAgainstBankers’BonusCap 80
4.3.2 TheContradictionwithOtherMeasuresandthe
CounterproductiveEffects 82
4.3.3 ConcernsAbouttheCompetitivenessoftheUK
FinancialIndustry 84
4.3.4 TheLiberalMarketIdeology 85
4.4 Conclusion 87
5 The Traditional Practice of Bankers’ Remuneration and
Incentives in China 89
5.1 Introduction 89
5.2 TheChineseBankingIndustry 90
5.2.1 TheReformofChineseState-OwnedCommercial
Banks(SOCBs) 91
5.2.1.1 EstablishmentandCommercialisation 91
5.2.1.2 NPLsandGovernmentalRescue 93
5.2.1.3 ShareholdingReformsandInitialPublic
Offerings(IPOs) 97
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 ix
5.2.2 TheDiversificationoftheChineseBankingSystem 100
5.2.3 TheStateinBankingReform 103
5.3 TheAdministrationofBankers’Remunerationand
PoliticalIncentives 106
5.3.1 StateOwnershipandIntervention 107
5.3.2 TheDeJureCorporateGovernanceinBanks 111
5.3.3 Bankers’RemunerationandIncentivesasaChannelfor
PoliticalIntervention 115
5.3.3.1 ABriefIntroductiontotheNationalAdministration
SysteminChina 115
5.3.3.2 PersonnelAdministrationinBanks 116
5.3.3.3 FixedRemunerationandPoliticalIncentives
forBankers 120
5.4 Conclusion 124
6 The Regulation of Bankers’ Remuneration in China 126
6.1 Introduction 126
6.2 TheFrameworkofBankingRegulation 126
6.3 TheRegulationontheDecision-MakingPowerof
Bankers’Remuneration 128
6.4 TheRegulationonRemunerationPolicyandManagement 130
6.4.1 RemunerationCaps 131
6.4.2 Equity-BasedRemunerationandLong-TermIncentives 135
6.4.3 PerformanceMetricsandAssessment 137
6.5 Conclusion 141
7 The Recent Practice of Bankers’ Remuneration and Incentives
in China 143
7.1 Introduction 143
7.2 ThePracticeofBankers’RemunerationinSOCBs 143
7.2.1 RemunerationLevelinSOCBs 144
7.2.1.1 TheLevelsofRemunerationof
DomesticBankers 146
7.2.1.1.1 LowRemunerationLevel 146
7.2.1.1.2 StableandNarrowGaps 149
7.2.1.1.3 RemunerationCut 150
7.2.1.2 TheLevelsofRemunerationfor
OverseasBankers 151
7.2.2 RemunerationComponentsandStructureinSOCBs 154
7.2.2.1 RemunerationComponents 154
7.2.2.2 RemunerationStructure 156
7.2.2.2.1 Performance-BasedRemuneration 157
7.2.2.2.2 Deferral 160
7.2.2.2.3 Clawbackandmalus 164
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