The Impact of Pay Transparency on Bank Compensation, Employment, Performance and Opacity

Abstract:

How does pay transparency affect bank opacity? We answer this question by studying the impact of the introduction of pay transparency laws across nine U.S. states with both advert-, individual- and bank-level data. We find that after the introduction: (1) more adverts include pay information; (2) bank employees, especially loan officers, leave for non-banks as wages are higher there; and (3) banks respond to these departures by increasing their own employee compensation. The departures of experienced employees and catch-up in wages precede more bank risk-taking and lower bank loan performance, and dispersion in loan loss provisioning!.