Marginal Returns to Talent for Material Risk Takers in Banking

38 Pages Posted: 18 Nov 2020

See all articles by Moritz Stieglitz

Moritz Stieglitz

Deutsche Bundesbank; Halle Institute for Economic Research

Konstantin Wagner

Halle Institute for Economic Research

Date Written: October 21, 2020

Abstract

Economies of scale can explain compensation differentials over time, across firms of different size, different hierarchy-levels, and different industries. Consequently, the most talented individuals tend to match with the largest firms in industries where marginal returns to their talent are greatest. We explore a new dimension of this size-pay nexus by showing that marginal returns also differ across activities within firms and industries. Using hand-collected data on managers in European banks well below the level of executive directors, we find that the size-pay nexus is strongest for investment banking business units and for banks with a market-based business model. Thus, managerial compensation is most sensitive to size increases for activities that can easily be scaled up.

Keywords: Banks, Business Models, Marginal Returns to Talent

JEL Classification: G21, G24, G34

Suggested Citation

Stieglitz, Moritz and Wagner, Konstantin, Marginal Returns to Talent for Material Risk Takers in Banking (October 21, 2020). Available at SSRN: https://ssrn.com/abstract=3716444 or http://dx.doi.org/10.2139/ssrn.3716444

Moritz Stieglitz

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Konstantin Wagner (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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