Research on performance-related compensations of financial advisors has recently become a promising field within economics and sociology, because it can help explain portfolio choices of retail customers. However, the expansion of this field to historical contexts has so far been prevented by the lack of knowledge about the historical development of these schemes. The following article aims to fill this void by exploring the spread of performance-related compensation schemes among banks and insurance companies in West Germany in the 1970s and 1980s. It is argued that this spread has been closely linked to a reform of the Federal Government system of savings subsidies in 1970. This reform led to a fierce competition between insurance companies and banks for wealth formation savings payments (vermögenswirksame Leistungen). In this article, it is argued that the characteristics of this particular state-subsidized market led to a significant advantage of financial institutions that used performance-related compensation schemes over those who did not. Thus, the latter institutions had to adopt these schemes to stay competitive. In the 1980s, banks as well as insurance companies expanded the application of compensation schemes that were originally designed for the market of wealth formation savings payments to other markets for financial products and services. Thus, the principles of competition on wealth formation savings payments were adopted to the general market for household savings.
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