Past Performance Is, In Fact, Indicative Of Future Results
After nine months of investigation,New York Attorney General Andrew Cuomo released a report on Wall Street compensation today. Among the findings: "[W]hen the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well." Cuomo's report is called "No Rhyme or Reason: The 'Heads I Win, Tails You Lose' Bank Bonus Culture," but if you ask me, it seems like there is both rhyme and reason: The star employees at big banks are always paid well! I mean, you can knock the system, but don't act like it's not at least consistent.
A big bonus means never having to say you're sorry.
Why are they "star emplyees" then?
Why are they star employess?!
I have a new compensation model for finance:
Big bonuses for modest revenues/growth.
Tiny bonuses for outsize revenues/growth.
No bonuses during losing quarters, ever.
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They should really reduce the motivation for inflated profits somehow, because it almost unfailingly leads to bubble economics which cause market traumas that destroy financial firms. If we followed the above rules, financial workers would work for constant, uninterrupted, steady modest growth. Which is what we want, right? Aren't we sick of 15% average gains followed by market crises?
How about negative bonuses for losing quarters?
Bonuses could be paid into escrow and tied to longer-term performance by using a 4- or 5-year vesting period.
There would be less incentive to make money simply by using a computer model and sophisticated financial instruments to burn the house down and collect the insurance. You'd have more of an incentive to come up with something that really worked for shareholders and the economy at large–or at least to rip everyone off more slowly, over the longer term!
I mean, Chad Ochocinco is cold gettin' paid, no matter how bad the Bengals suck this year. Similar?
Not really. He gets paid for his individual performance and market value, since there are a bunch of other, possibly more successful, possibly less successful, teams competing for his services.
He likely gets paid a bonus over and above his salary if the Bengals are to make the playoffs, win the Super Bowl, etc.
I thought, and I could very well be utterly wrong, that many professional athletes had individual performance incentives in their contracts, rather than team incentives. Like if he catches 80 touchdowns in a season, a bonus–if they make the playoffs, a "good job, buddy." Also, I imagine that a star banker could be competed over like a star wide receiver, but maybe not?