Are Human Capital and Incentives the Two Breasts of Wages in Finance?

Thanks to an original wage dataset (1997-2000) from a major bank in Paris, we show the importance of human capital in the financial sector, both in terms of quantity and price. However, a careful examination of the data shows significant anomalies compared to the human capital model: at given levels of human capital, wages vary widely by profession. Are these differences due to reasons of incentives and compensation for risk aversion? We show also that the principal-agent theory does not adequately account for unequal pay. Occupations where bonus expectancy is the highest are also jobs where fixed wages are the highest. There is no trade-off between these two components of pay. While human capital and incentives can contribute to wage levels, they fail to account fully for the latter and reveal rents relating to the occupation of key positions.