Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/198855
Authors: 
Efing, Matthias
Hau, Harald
Kampkötter, Patrick
Rochet, Jean-Charles
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper 7495
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.
Subjects: 
banker compensation
risk sharing
bonus pay
operating leverage
JEL: 
G20
G21
D22
Document Type: 
Working Paper
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