Open Access

Maria Assel

• Performance-based compensation is commonly used to address principal agent problems. However, traditional compensation schemes are increasingly criticized for creating incentives for managers to improve current performance at the expense of long-term firm interest to increase their bonus. Proposed solutions to the problem of managerial myopia and opportunism include the use of bonus bank schemes, which delay the payment of bonuses and impose conditions for bonus payout. This dissertation contributes to the academic discourse by examining the incentive properties of bonus bank schemes in a rational economics framework and identifying parameters and conditions that influence the effectiveness of bonus bank schemes. The dissertation outlines and discusses the concept of bonus bank schemes proposed in the literature. It formalizes the proposed procedures and adopts an analytical approach to determine the conditions under which bonus bank schemes can provide incentives for fully rationalPerformance-based compensation is commonly used to address principal agent problems. However, traditional compensation schemes are increasingly criticized for creating incentives for managers to improve current performance at the expense of long-term firm interest to increase their bonus. Proposed solutions to the problem of managerial myopia and opportunism include the use of bonus bank schemes, which delay the payment of bonuses and impose conditions for bonus payout. This dissertation contributes to the academic discourse by examining the incentive properties of bonus bank schemes in a rational economics framework and identifying parameters and conditions that influence the effectiveness of bonus bank schemes. The dissertation outlines and discusses the concept of bonus bank schemes proposed in the literature. It formalizes the proposed procedures and adopts an analytical approach to determine the conditions under which bonus bank schemes can provide incentives for fully rational managers to act in the best interest of the firm. In a second step, this dissertation dismisses assumptions of decision makers’ rationality and adopts a behavioral lens to examine whether and how bonus deferral and bonus recovery provisions individually and collectively affect individuals’ behavior. Laboratory experiments provide evidence on the behavioral incentives of bonus bank schemes on investment decisions, effort provision, and risk-taking behavior. This dissertation thus provides a better understanding of the behavioral incentives of bonus bank schemes and ultimately their effect on firm prospects.…