Bank Bonus Pay as a Risk Sharing Contract

Matthias Efing, Harald Hau, Patrick Kampkötter and Jean Rochet

No 18-72, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of fi nancial frictions that make external fi nancing 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)
Pages: 41 pages
Date: 2018-11
New Economics Papers: this item is included in nep-ban and nep-hrm
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Bank Bonus Pay as a Risk Sharing Contract (2023)
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2023)
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2019)
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2018)
Working Paper: Bank Bonus Pay as a Risk Sharing Contract (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1872

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