Working Paper Series no. 294: Compensation in the Financial Sector: Are all Bankers Superstars?

Abstract

Based on a survey among French engineers, I find that employees in the financial sector are highly paid. I also find large pay differences within the sector and that a large share of compensation is variable. I consider three potential models accounting for these facts: a model of superstars (Rosen, 1981), a model of compensating wage differential (Lucas, 1977), and a model of moral hazard (Laffont and Martimort, 2002). I investigate and test the empirical implications of these models. I conclude that the model of superstars fits better the data than the models of moral hazard and compensating wage differential.

Claire Célérier
October 2010

Classification JEL : G2, G24, J3, J31, M5.

Keywords : Finance, compensation, wage distribution, wage structure, incentives, superstars