The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience

von Ehrlich, Maximilian; Radulescu, Doina Maria (2017). The taxation of bonuses and its effect on executive compensation and risk‐taking: Evidence from the UK experience. Journal of economics & management strategy, 26(3), pp. 712-731. Wiley 10.1111/jems.12203

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This paper explores the reaction of compensation components awarded to executive directors of UK financial institutions following the adoption of the bonus tax in December 2009. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly corporate risk-taking by means of a special tax on cashbased bonuses. Using a comprehensive dataset on executive compensation we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 43%, accompanied however by a simultaneous increase in other compensation components leaving both variable as well as total compensation unaffected. Hence, the incidence of the bonus tax was borne by the firms which compensated their managers for the decrease in cash-based compensation by awarding them different forms of pay. Consistent with this finding our data also suggests that firms reduced dividend pay-outs as a consequence of the bonus tax.

Item Type:

Journal Article (Original Article)


11 Centers of Competence > Center of Comptetence for Public Management (KPM)
03 Faculty of Business, Economics and Social Sciences > Department of Economics
11 Centers of Competence > Center for Regional Economic Development (CRED)

UniBE Contributor:

von Ehrlich, Maximilian and Radulescu, Doina Maria


300 Social sciences, sociology & anthropology > 350 Public administration & military science
300 Social sciences, sociology & anthropology > 330 Economics








Fabian Stefan Feger

Date Deposited:

25 Sep 2014 16:29

Last Modified:

26 Apr 2018 13:55

Publisher DOI:





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