Jordy Meekes, Melbourne Institute - Mind the cap: The effects of regulating bankers' pay

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Title: Mind the cap: The effects of regulating bankers' pay

Abstract: In this paper we investigate how restrictions to the possibility of paying large bonuses affect employees' pay schemes and firms' ability to attract and retain workers. Using administrative data from Statistics Netherlands, we study the Dutch bonus cap that sets a 20% limit to the ratio between variable and fixed pay for all workers employed in the banking industry. Comparing banks to financial institutions not covered by the regulation, results based on a dynamic differences-in-differences specification show that treated employees experience a sharp drop in variable pay which is not fully compensated by an increase in fixed pay. The observed changes in compensation affect banks' ability to attract and retain workers by decreasing their hiring rate and increasing their separation rate compared to the control group.

Presenter: Jordy Meekes, Melbourne Institute

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