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Regulating deferred incentive pay

Listed author(s):
  • Hoffmann, Florian
  • Inderst, Roman
  • Opp, Marcus

Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.

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File URL: https://www.econstor.eu/bitstream/10419/110266/1/825491088.pdf
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Paper provided by Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS) in its series IMFS Working Paper Series with number 91.

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Date of creation: 2015
Handle: RePEc:zbw:imfswp:91
Contact details of provider: Web page: http://www.imfs-frankfurt.de/en.html
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