Bank Bonus Pay as a Risk Sharing Contract - new publication by Harald Hau
In a new paper, Professor Harald Hau and is co-authors argue that risk sharing motivates the bankwide 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 negative earnings shocks.
Using payroll data for 1.26 million employee-years in all functional divisions of Austrian, German, and Swiss banks, they uncover several empirical patterns in bonus pay that are difficult to rationalize exclusively with incentive theories of bonus pay but that support an important risk sharing motive.
The paper "Bank Bonus Pay as a Risk Sharing Contract" is co-authored with Matthias Efing, Patrick Kampkötter, and Jean-Charles Rochet, and is published in The Review of Financial Studies.
Harald Hau is the Director of the GEMFIN (Executive Master in Finance) program.
Jan 13, 2024