Richard Freeman, Wei Huang, Teng Li, 07 May 2019

Incentive systems that pay workers bonuses based on performance targets are widely used to increase productivity, but they can incur costs to firms from workers gaming the system. This column studies the introduction of one such non-linear incentive system by a major Chinese insurance firm. It finds that the system increased productivity and lowered turnover rates sufficiently to outweigh the gaming costs, and appears to have benefitted both workers and the firm.

Esa Jokivuolle, Jussi Keppo, Xuchuan Yuan, 23 July 2015

Bankers’ compensation has been indicted as a contributing factor to the Global Crisis. The EU and the US have responded in different ways – the former legislated bonus caps, while the latter implemented bonus deferrals. This column examines the effectiveness of these measures, using US data from just before the Crisis. Caps are found to be more effective in reducing the risk-taking by bank CEOs.

Thomas Gehrig, Lukas Menkhoff, 02 March 2009

Bonuses are seen as drivers of greed, irresponsibly, and short-sighted behaviour. This column discusses the research on how bonuses affect bankers’ behaviour. It argues that bonuses are a valuable tool for guiding managers to do what’s right for corporations and even society. The debate should be about performance criteria and sustainable goals, not the size of bonus payments.

Thomas Philippon, 02 February 2009

Evidence from a new century-long dataset suggests that the key factors driving relative wages in the financial sector have been regulation and corporate finance activity, followed by financial innovation. Over the past decade, however, “rents” account for 30% to 50% of the sector’s wage differential. In this sense, financiers are overpaid.

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