Deferred pay: Compliance and productivity with self-selection

Abstract

Financial services misconduct is a concern for many stakeholders and deferred variable remuneration has been proposed as an antidote. The implications for attracting/retaining productive individuals are unknown. This study investigates deferred payment mechanisms through experiments in student and professional samples, taking account of self-selection effects. We confirm that the introduction of deferrals would reduce misconduct through better monitoring. While some individuals eschew deferred payment, even in the presence of a deferral premium, productive individuals are under-represented in this group. Productive individuals are more likely to select deferred variable remuneration, so productivity outcomes are equal to or superior to alternative treatments.