We provide the first evidence that prudential principles shape bankers’ executive compensation, a phenomenon we call “pay for prudence” (PfP). We conjecture that PfP incentivizes bankers to balance shareholders’ preference for risk with regulators’ preference for prudence. Although PfP terms are often used in bank compensation contracts, we find that the use of detailed and concrete PfP terms are positively associated with equity incentives for risk-taking. Furthermore, detailed and concrete PfP terms are associated with lower tail risk, fewer bad loans, and lower likelihood of regulatory downgrades. While we do not find evidence that PfP is associated with lower profitability, PfP is associated with more diversified loan portfolios and reduced exposure to real estate. Our results shed light on a new dimension of bankers’ pay and suggest that PfP-based incentives complement widely studied equity-based incentives for risk-taking by acting as guard rails that guide managers’ pursuit of investment opportunities.

我们提供了第一个证据，证明审慎原则影响银行家的高管薪酬，我们将这种现象称为“审慎薪酬”（PfP）。我们推测，PfP 会激励银行家平衡股东的风险偏好和监管机构的审慎偏好。尽管PfP条款经常用于银行薪酬合同中，但我们发现，详细而具体的PfP条款的使用与风险承担的股权激励呈正相关。此外，详细而具体的 PfP 条款与较低的尾部风险、较少的不良贷款和较低的监管降级可能性相关。虽然我们没有发现证据表明 PfP 与较低的盈利能力相关，但 PfP 与更加多元化的贷款组合和减少房地产风险相关。