Change in Bankng Sector Essay Example | Topics and Well Written Essays - 1000 words

Change in Bankng Sector - Essay Example However, this certainly does not mean that CEOs' salary is almost immune to the ensuing circumstances (Frederick, 2000). The fast unravelling omens are indicative of the fact that such salary appreciations may not continue in 2009. Many banks and financial institutions are resorting to freezes on executive remuneration and the concerned experts are already professing a highly constrained rise of a mere 2 to 3 percent in the current year (New Zealand Management, 2009). In the given context, the executive pay has become a crucial issue in the sense that despite the rising unemployment rates and the ongoing credit crunch, it has become imperative for the banks and financial institutions to hold on to the key executive talent (New Zealand Management, 2009). A possible analysis of the level and structure of bank CEO pays needs to be conducted in the light of the emerging trends and challenges (Crawford et al., 1995). Just a year ago, it was not possible to divine the scale of crises that has engulfed the banking sector in the US and Europe. The emerging trends marked by a heightened state intervention, with governments becoming crucial stakeholders in the reputed banks like the Royal Bank of Scotland and the destined to merge Lloyds TSB and HBOS, the year 2009 no doubt will unleash never before vistas for the bank CEOs (Investors Chronicle, 2009). Such sector specific developments are projected to be further aggravated by the accompanying macroeconomic trends like a predictable, above average shrinking of the major economies like the US and the UK. While the natural reaction of the banks is to opt for restrained lending policies, the governments are pressing them hard to extend loans to individuals and small businesses (Monday Business Briefing, 2009). Further, the bad debts and balance sheets are making the markets much competitive. Despite the central banks throughout the world trying hard to enhance liquidity, the interbank loans continue to be dearer. Under such tough circumstances, only the best will survive. This bleak scenario marked by a cutthroat competition is bound to have an impact on the salaries of all the employees in general and the bank CEOs in particular (African Business, 2009). Competition and Bank CEO Compensation Consequently, the situation becomes quiet understandable, considering the existing circumstances. In an environment replete with fast shifting degrees of competition and abundant regulations, the banks are more then under strain to realign the remuneration of CEOs and top executives with the organizational objectives and sustainability (Bebchuk & Fried, 2003). Scenarios defined by elevated competition make it imperative for the banks to tag the salaries of their CEOs with overall performance. The rational that under normal circumstances, the CEO's salary constitutes just a tiny proportion of the total value of a bank should not confuse one (Kay &