Bankers' Pay Structure And Risk

John Thanassoulis

No 545, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper studies the contracting problem between banks and their bankers, embedded in a competitive labour market for banker talent. To motivate effort banks must use some variable remuneration. Such remuneration introduces a risk-shifting problem by creating incentives to inflate early earnings: to manage this some bonus pay is optimally deferred. As competition between banks for bankers rises it becomes more expensive to manage the risk-shifting problem than the moral hazard problem. If competition grows strong enough, contracts which permit some risk-shifting become optimal. Empirically I demonstrate that balance sheets have changed in a manner which triggers this mechanism.

Keywords: Risk-shifting; Moral hazard; Incentives; Bonuses; Banks; Bankers' pay (search for similar items in EconPapers)
JEL-codes: G21 G34 (search for similar items in EconPapers)
Date: 2011-04-01
New Economics Papers: this item is included in nep-ban and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:7255db06-060b-4161-b2cc-c4045d74ce58 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:545

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).