Matthias Efing, Harald Hau, Patrick Kampkötter, Johannes Steinbrecher, 13 November 2014

Bankers’ bonuses are increasingly regulated but we know little about how they affect risk-taking and value-creation. Based on payroll data from 1.2 million bank employee-years in Austria, Germany, and Switzerland, this column finds evidence that bonuses affect both profits and risk-taking. Policy thus needs to strike a balance and acknowledge the limited regulatory capacity to determine optimal incentives. Higher capital requirements and shareholder empowerment might outperform simple bonus regulations. 

Joanne Lindley, Steven McIntosh, 21 September 2014

Individuals who work in the finance sector enjoy a significant wage advantage. This column considers three explanations: rent sharing, skill intensity, and task-biased technological change. The UK evidence suggests that rent sharing is the key. The rising premium could then be due to changes in regulation and the increasing complexity of financial products creating more asymmetric information.

Hans Gersbach, 02 April 2011

When banks failed, the government paid up. But the bankers responsible kept their bonuses from the years of excess. This column argues for “crisis contracts”. Such contracts require that, in the event of a crisis, bank managers forfeit a portion of their past earnings to rescue the banking system.

Brian Bell, John Van Reenen, 03 May 2010

The global crisis has sharpened the media spotlight and political debate on bankers’ bonuses. Focusing on evidence from the UK, this column argues that to avoid excessive risk-taking in the financial sector and exploitation of moral hazard, bankers’ bonuses should be based on risk-adjusted long-run performance or be subject to “clawback” if future performance declines.

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