Performance-based compensation vs. Guaranteed compensationcontractual incentives and performance in the Brazilian banking industry

Resumo

Top management from retail banks must delegate authority to lowerlevel managers to operate branches and service centers. Doing so, they must navigate through conflicts of interest, asymmetric information and limited monitoring in designing compensation plans for such agents. Pursuant to this delegation, banks adopt a system of performance targets and incentives to align the interests of senior and unit managers. This paper evaluates the causal relationship between performance-based salaries and managers' effective performance. Using data from January 2007 to June 2009 of a large Brazilian retail banks, we find that that agents with guaranteed variable salary contracts have inferior performance compared with agents who have performance-based compensation packages. We conclude that there is a moral hazard in the behavior of agents who are subject to guaranteed variable salary contracts.

Ficha do documento

Tipo

Artigo científico

Ano

2014

Instituição

Universidade de Sao Paolo

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

DOI

10.1590/1413-8050/ea474

Identificador

oai:repositorio.fgv.br:10438/25067

Temas

Economia

Palavras-chave

Contract and incentivesManager's performanceMoral hazardPanel data analysisRetail bank industryContratos e IncentivosRisco MoralEconomiaBancos - Seleção e admissãoGerentes - Contrato de trabalho