The Dose Makes the Poison – an Analysis of the Influence of Bonus Payments on Profitability and Risk-Taking by Banks

Parallel to the private sector, supervisory authorities are also trying to reform compensation practices in banks. It is worth noting the range of reform approaches that differ dramatically from each other in some cases, which is primarily due to the lack of empirical insights into the effect of bonus payments on profitability and risk-taking by banks. This article describes the results of a new study on bonus payments in 67 banks in Germany, Austria and Switzerland, which identifies the causal relationships between bonus payments and business development in the capital markets area of banks.