Date of this Version
The Journal of Finance
We propose a labor market model in which financial firms compete for a scarce supply of workers who can be employed as either bankers or traders. While hiring bankers helps create a surplus that can be split between a firm and its trading counterparties, hiring traders helps the firm appropriate a greater share of that surplus away from its counterparties. Firms bid defensively for workers bound to become traders, who then earn more than bankers. As counterparties employ more traders, the benefit of employing bankers decreases. The model sheds light on the historical evolution of compensation in finance.
This is the peer reviewed version of the following article: GLODE, V. and LOWERY, R. (2016), Compensating Financial Experts. The Journal of Finance, 71: 2781–2808. which has been published in final form at 10.1111/jofi.12372. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms.
Glode, V., & Lowery, R. (2016). Compensating Financial Experts. The Journal of Finance, 71 (6), 2781-2808. http://dx.doi.org/10.1111/jofi.12372
Date Posted: 27 November 2017
This document has been peer reviewed.