HEC Research Papers Series,
HEC Paris

Abstract: Some bank regulators warn that risk managers (RMs) will collude with banks' front offices (FOs) and rubberstamp investments if their bonuses depend on the performance of FOs. We show theoretically that positive pay correlation between FOs and RMs can instead be optimal. Based on data for German non-executive bank employees, we show empirically that performance pay is indeed positively correlated between RMs and FOs in practice. These pay correlations tend to be higher in banks with competent directors and in banks with stronger performance during the crisis of 2008, in line with our model predictions.

Keywords: risk management; governance; optimal contracts; pay-for-performance; risk-taking

JEL-codes: G20; G21; J30

72 pages, September 18, 2020

Full text files

papers.cfm?abstract_id=3681255 HTML file Full text

Download statistics

• HEC Paris
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:ebg:heccah:1388This page generated on 2024-09-13 22:19:53.