Wages and Incentives in the Late 19th and Early 20th Century Australian Banking Industry

Abstract

This paper summarises research on the mechanisms used by banks to align the interests of their workers with the goal of long-term profit maximization. Banking was characterised by moral hazard, and the monitoring technology of the period was far from perfect. The banks incentivized the workers by establishing well-defined career structures within internal labour markets, by strongly tying salary to tenure and attaching large salary increases to promotion. A worker who quit or was dismissed was punished with a considerable loss of lifetime earnings. Conversely, one who exceeded the norms was rewarded by substantial earnings growth associated with seniority and promotion.

Keywords: Compensation, careers, banking, personnel