Regulating Deferred Incentive Pay

Roman Inderst, Florian Hoffmann and Marcus Opp

No 9877, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Our paper examines the effect of recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses for compensation contracts in the financial sector. We study a multi-task setting in which a bank employee, the agent, privately chooses (deal or customer) acquisition effort and diligence, which stochastically reduces the occurrence of negative events over time (such as loan defaults or customer cancellations). The key ingredient of the compensation contract is the endogenous timing of a long-term bonus that trades off the cost and benefit of delay resulting from agent impatience and the informational gain, respectively. Our main finding is that government interference with this privately optimal choice may

Keywords: Compensation design; Financial regulation; Principal-agent models (search for similar items in EconPapers)
JEL-codes: D86 G21 G28 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-mic and nep-reg
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Citations: View citations in EconPapers (3)

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Working Paper: Regulating deferred incentive pay (2015)
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