Deferred Variable Remuneration - A Solution for the Financial Services Industry?

13 Pages Posted: 29 Mar 2021

See all articles by Elizabeth A. Sheedy

Elizabeth A. Sheedy

Macquarie University Department of Applied Finance; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

Le Zhang

Macquarie University, Macquarie Business School; Macquarie University - Macquarie Graduate School of Management

Yin Liao

Australian National University - The Centre for Applied Macroeconomic Analysis (CAMA); Macquarie University - Department of Applied Finance and Actuarial Studies

Date Written: March 29, 2021

Abstract

This experimental study investigates how the use of deferred variable remuneration, as opposed to immediate payment of variable remuneration and fixed payment, would affect both misconduct and productivity. Unsurprisingly, the study finds lower rates of misconduct under deferred variable remuneration versus immediate variable remuneration. Those who select Variable/Deferred display significantly better compliance with policy than those who select Variable/Immediate.

We take account of the possibility that changes in remuneration might influence the ability to attract talented graduates and retain talented employees. We confirm that fixed remuneration tends to repel talented individuals, and that this remuneration structure has the worst productivity outcomes. While some individuals prefer variable remuneration with immediate payment, these individuals are not significantly more likely to be talented. In fact, greater talent was associated with the choice of variable remuneration with deferred payment. Our results are consistent with previous behavioural research which has found that cognitive ability is associated with greater patience and therefore lower discounting of future payments. Consequently the use of deferrals may be beneficial for attracting/retaining talented individuals and maintaining high levels of productivity.

Keywords: deferred pay, self selection, experiment, compliance, productivity

JEL Classification: C90, J33, M52

Suggested Citation

Sheedy, Elizabeth A. and Zhang, Le and Zhang, Le and Liao, Yin and Liao, Yin, Deferred Variable Remuneration - A Solution for the Financial Services Industry? (March 29, 2021). Available at SSRN: https://ssrn.com/abstract=3814623 or http://dx.doi.org/10.2139/ssrn.3814623

Elizabeth A. Sheedy (Contact Author)

Macquarie University Department of Applied Finance ( email )

Room 739, 4 Eastern Road
Macquarie University
North Ryde, NSW 2109
Australia
61-2-9850 7755 (Phone)
61-2-9850 7281 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Le Zhang

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Macquarie University - Macquarie Graduate School of Management ( email )

Yin Liao

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
United States

Australian National University - The Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Canberra, Australian Capital Territory 2601
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
23
Abstract Views
224
PlumX Metrics