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Bank Bonus Pay as a Risk Sharing Contract

Matthias Efing, Harald Hau (), Patrick Kampkötter and Jean Rochet

No 7495, CESifo Working Paper Series from CESifo

Abstract: We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of financial frictions that make external financing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks. Using payroll data for 1:26 million employee-years in all functional divisions of Austrian, German, and Swiss banks, we uncover several empirical patterns in bonus pay that are difficult to rationalize with incentive theories of bonus pay - but support an important risk sharing motive. In particular, bonuses respond to performance shocks that are outside the control of employees because they originate in other bank divisions or even outside the bank.

Keywords: banker compensation; risk sharing; bonus pay; operating leverage (search for similar items in EconPapers)
JEL-codes: D22 G20 G21 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban, nep-cta, nep-eur and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

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Related works:
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2023)
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2018) Downloads
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2018) Downloads
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2018)
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