Determinants of the use of financial incentives in investment banking

Nash, David Roger ORCID: https://orcid.org/0000-0002-1244-2231 2003. Determinants of the use of financial incentives in investment banking. [Working Paper]. Working Paper Series, vol. 256. Cambridge, UK: ESRC Centre for Business Research, University of Cambridge. Available at: https://openlibrary.org/books/OL19435240M/Determin...

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Abstract

This paper examines the use of incentive pay schemes within the financial services sector in London. Various theories of wage determination are reviewed with particular attention placed on the principal-agent literature as a framework for analysing the use of incentive pay. This is combined with case study interviews and a number of hypotheses regarding the use of bonuses. Quantitative analysis of a detailed industry-wide survey validates the hypothesis that those occupations where output is easily identifiable receive higher bonus pay. The proximity of an occupation to the revenue generating activity within the organisation is also found to be significant in determining bonus levels, as is job grade within the organisation. The paper concludes that principal-agent theories of wage determination are useful in understanding the use of bonus pay in the City, but need to be modified to take account of particular institutional characteristics, in particular the power of individual agents.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HG Finance
Publisher:	ESRC Centre for Business Research, University of Cambridge
Date of First Compliant Deposit:	26 October 2021
Last Modified:	25 Oct 2022 08:03
URI:	https://orca.cardiff.ac.uk/id/eprint/51252

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