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Risk Managers in Banks

Author

Listed:
  • Matthias Efing

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

  • Patrick Kampkötter

Abstract

How do banks remunerate risk managers and what are the implications for risk-taking? Studying 127 German banks during the years 2003 to 2007, we show that risk managers' remuneration is positively aligned with performance-linked pay in front offices (FOs). When bonuses in FOs increase by one Euro, the bonus of a risk manager increases by 13.6 to 33.5 Cents, depending on the risk manager's seniority. Risk-sharing among employees or labor market competition do not explain this finding. Banks with more aligned incentive pay between risk management and FOs during the years before the crisis of 2008-2009 performed better in the crisis.

Suggested Citation

  • Matthias Efing & Patrick Kampkötter, 2020. "Risk Managers in Banks," Working Papers hal-02953045, HAL.
    • Handle: RePEc:hal:wpaper:hal-02953045
    DOI: 10.2139/ssrn.3681255
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    Keywords

    risk management; governance; pay-for-performance; revolving doors; risk-taking;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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