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Regulating deferred incentive pay

Florian Hoffmann, Roman Inderst and Marcus Opp

No 91, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.

Keywords: financial regulation; compensation design; principal-agent models (search for similar items in EconPapers)
JEL-codes: D86 G21 G28 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Regulating Deferred Incentive Pay (2014) Downloads
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