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Pay-performance sensitivity of compensation contracts for nonexecutive employees: the case of the financial crisis

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  • Patrick Kampk�tter

Abstract

In the aftermath of the recent financial crisis, the appropriateness of bonus payments for employees in the banking and financial services sector has been discussed controversially. While past research has predominantly focused on the pay-performance sensitivity for CEOs or top executive employees, little is known about this relationship for employees below the top executive level. We contribute to the literature by investigating a large sample of German and Swiss banks and find that nonexecutive bonus payments significantly followed firm performance prior to the financial crisis, but this effect vanished in the crisis period. Furthermore, in both periods, the estimated performance sensitivity is higher when negative returns are capped at zero.

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  • Patrick Kampk�tter, 2015. "Pay-performance sensitivity of compensation contracts for nonexecutive employees: the case of the financial crisis," Applied Economics Letters, Taylor & Francis Journals, vol. 22(9), pages 734-738, June.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:9:p:734-738
    DOI: 10.1080/13504851.2014.972542
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