Comments on: Fixing bankers’ pay http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Danny_Black http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-16030 Sat, 19 Jun 2010 05:18:11 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-16030 Oh for the love of God, Jimmy Cayne lost a paper wealth of nearly a billion USD, Fuld lost hundreds of millions. If that ain’t going to motivate you what is?

And they also stuck their money in the company equity for years, sometimes decades and clearly equity meets the not paying out if “the firm has not declared bankruptcy or received extraordinary government support”. Or is he saying that CEOs should be forced to be unsecured lenders to the bank for say five years in return for what? There going to be a cap on the interest they will receive on this “investment”? Why five years? Why not 10? Or 100?

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By: ISOK http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15973 Thu, 17 Jun 2010 14:15:18 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15973 Dear Felix,

I also think that deferred cash compensation is preferable, something like 1/3rd per year for three years.

But what’s perhaps more important is the calculation of bonuses, rather than the form they take. It’s completely insane, particularly in a financial institution, to reward someone based on revenue, without accounting for the risk assumed in generating that revenue — effectively you end up subsidizing thousands of roulette wheels spinning in parallel. It would seem to make a whole lot more sense to calculate one’s bonus based on profits above and beyond the cost of capital. That, combined with delayed cash payments, could help a great deal in nudging traders and / or bankers towards internalizing the cost of risk in their relentless pursuit of revenue (it also might help shrink the banks, incidentally).

Basically I’m talking about EVA: http://en.wikipedia.org/wiki/Economic_va lue_added.

Thanks,
ISOK

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By: Storyburn_has http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15968 Thu, 17 Jun 2010 11:08:50 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15968 Obama needs to match the UK 50% tax rate on banker payouts. We just launched a facebook competitor at story+burn dotcom

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By: inboulder http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15964 Thu, 17 Jun 2010 08:39:18 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15964 “So what to do? “It’s important to get incentive alignment,” said Stein, between managers and taxpayers. And one way of doing that is to force a large part of executive compensation to be paid in cash — and then to hold back that cash for several years, to be surrendered in the event that the bank fails or receives exceptional government support.”

What? Why not just pay the majority of compensation in equity (stock options) and ‘hold it back’ for several years? I don’t see how this would create incentive for risk taking?

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By: HBC http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15956 Thu, 17 Jun 2010 04:04:29 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15956 Proper alignment with the taxpayer would entail paying bankers an amount equal to the average taxpaying account-holder salary, investing any bonus funds proportionately across the relevant 401k spectrum, deferred forever.

Think they might go for it?

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By: The1eyedman http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15937 Wed, 16 Jun 2010 20:08:59 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15937 The concepts of peging saleries to the ‘Tax Payer,’ appear to be a little skewed.
The Bank’s primary duty is to its depositors and then to its share holders and employees.
Their problem at present is the banks have been running a book and lost.
If a bookmaker or casino goes bust it is their problem and they do not come to the tax payer and obtain a free loan to allow them to carry on running the book making business.
If they want to bet the firm on a particular outcome they are quite entitled too, however they are not entitled to say we must have a hand out we are too big to fail.

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By: absinthe http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15935 Wed, 16 Jun 2010 18:32:13 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15935 So we want to give them incentives that align them with the taxpayer, but their fiduciary duty is to the shareholder? I think it’s going to take more than this to solve the limited liability problem.

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By: q_is_too_short http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15934 Wed, 16 Jun 2010 18:19:14 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15934 me again. the other piece of this is that stock options given to employees are equity and count as bank capital, and if you gave the employees cash (even if deferred) it would not.

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By: q_is_too_short http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15933 Wed, 16 Jun 2010 18:17:12 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15933 so rather than giving them call options, give them equity minus a slightly out of the money call. ie cap their upside, which caps their incentive to take risk.

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By: dWj http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/comment-page-1/#comment-15932 Wed, 16 Jun 2010 18:14:11 +0000 http://blogs.reuters.com/felix-salmon/2010/06/16/fixing-bankers-pay/#comment-15932 Indeed, I would be more inclined to go 20/80 in the other direction. Or simply to apply the rule to 100% of bonus compensation.

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