Risk Managers in Banks

66 Pages Posted: 18 Sep 2020 Last revised: 30 Jul 2021

See all articles by Matthias Efing

Matthias Efing

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Patrick Kampkötter

University of Tuebingen - Department of Managerial Accounting

Date Written: September 30, 2020

Abstract

How do banks remunerate risk managers? Studying 127 banks during the years 2003 to 2007, we show that the performance pay of risk managers is positively aligned with the performance pay of traders and loan officers. A risk manager receives a 13.6 to 33.5 Cents higher bonus when the average bonus paid in front offices increases by one Euro. Labor markets or risk-sharing among employees do not fully explain this finding. Risk managers whose remuneration is strongly aligned with performance pay in front offices work for banks that did better in the crisis of 2008-2009. These findings are consistent with predictions derived from a model of efficient risk manager compensation.

Keywords: risk management, governance, optimal contracts, pay-for-performance, risk-taking

JEL Classification: G20, G21, J3

Suggested Citation

Efing, Matthias and Kampkötter, Patrick, Risk Managers in Banks (September 30, 2020). HEC Paris Research Paper No. FIN-2020-1388, Available at SSRN: https://ssrn.com/abstract=3681255 or http://dx.doi.org/10.2139/ssrn.3681255

Matthias Efing (Contact Author)

HEC Paris - Finance Department ( email )

France
(++33)695646755 (Phone)

HOME PAGE: http://matthiasefing.com/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Patrick Kampkötter

University of Tuebingen - Department of Managerial Accounting ( email )

Germany

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