Regulating deferred incentive pay

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMFS Working Paper Series ; No. 91

Classification and Topics

• Classification: Wirtschaft ; Financial Institutions and Services: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Economics of Contract: Theory
• Subject: financial regulation ; compensation design ; principal-agent models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hoffmann, Florian ; Inderst, Roman ; Opp, Marcus
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
• (where): Frankfurt a. M.
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/110266
• URN: urn:nbn:de:hebis:30:3-374832
• Last update: 10.03.2025, 11:43 AM CET