Bank Bonus Pay as a Risk Sharing Contract

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7495

Classification and Topics

• Classification: Wirtschaft ; Financial Institutions and Services: General ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Firm Behavior: Empirical Analysis
• Subject: banker compensation ; risk sharing ; bonus pay ; operating leverage

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Efing, Matthias ; Hau, Harald ; Kampkötter, Patrick ; Rochet, Jean-Charles
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/198855
• Last update: 10.03.2025, 11:43 AM CET