Marginal returns to talent for material risk takers in banking

Moritz Stieglitz and Konstantin Wagner

No 20/2020, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: Economies of scale can explain compensation differentials over time, across firms of different size, different hierarchy-levels, and different industries. Consequently, the most talented individuals tend to match with the largest firms in industries where marginal returns to their talent are greatest. We explore a new dimension of this size-pay nexus by showing that marginal returns also differ across activities within firms and industries. Using hand-collected data on managers in European banks well below the level of executive directors, we find that the size-pay nexus is strongest for investment banking business units and for banks with a market-based business model. Thus, managerial compensation is most sensitive to size increases for activities that can easily be scaled up.

Keywords: banks; business models; marginal returns to talent (search for similar items in EconPapers)
JEL-codes: G21 G24 G34 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban and nep-hrm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:202020

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