This paper proposes hybrid capital securities as a significant part of senior bank executive incentive
compensation in light of Basel III, a new global regulatory standard on bank capital adequacy and
liquidity agreed by the members of the Basel Committee on Banking Supervision. The committee
developed Basel III in a response to the deficiencies in financial regulation brought about by the global
financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory
requirements on bank liquidity and bank leverage. The hybrid bank capital securities we propose for
bank executives’ compensation are preferred shares and subordinated debt that the June 2004 Basel II
regulatory framework recognised as other admissible forms of capital.