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  3. The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience
 

The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience

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BORIS DOI
10.7892/boris.58652
Date of Publication
2017
Publication Type
Article
Division/Institute

Departement Volkswirt...

Kompetenzzentrum für ...

Author
v. Ehrlich, Maximilian
Departement Volkswirtschaftslehre (VWL)
Radulescu, Doina Mariaorcid-logo
Kompetenzzentrum für Public Management (KPM)
Subject(s)

300 - Social sciences...

300 - Social sciences...

Series
Journal of economics & management strategy
ISSN or ISBN (if monograph)
1058-6407
Publisher
Wiley
Language
English
Publisher DOI
10.1111/jems.12203
Description
This paper explores the reaction of compensation components awarded to executive directors of UK financial institutions following the adoption of the bonus tax in December 2009. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly corporate risk-taking by means of a special tax on cashbased bonuses. Using a comprehensive dataset on executive compensation we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 43%, accompanied however by a simultaneous increase in other compensation components leaving both variable as well as total compensation unaffected. Hence, the incidence of the bonus tax was borne by the firms which compensated their managers for the decrease in cash-based compensation by awarding them different forms of pay. Consistent with this finding our data also suggests that firms reduced dividend pay-outs as a consequence of the bonus tax.
Handle
https://boris-portal.unibe.ch/handle/20.500.12422/126459
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FileFile TypeFormatSizeLicensePublisher/Copright statementContent
Ehrlich_et_al-2017-Journal_of_Economics_%26amp%3B_Management_Strategy.pdftextAdobe PDF460.79 KBpublisherpublished restricted
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