Changes in Board Composition and Compensation in Banking from 1999 to 2008

A board of directors is one of the most important corporate governance instruments available to banks. Another is the design of compensation packages for managers and directors to align their goals with those of other bank stakeholders: owners, creditors, depositors, taxpayers and regulators. Stakeholders can complement monitoring with incentive pay schemes by making the manager a residual claimant to the additional value obtained by his/her actions. However, compensation models for banks do not only have to align managerial and shareholder incentives, but must also avoid excessive risk-taking that may result in systemic risk (Bolton et al., 2010; Gordon, 2010).