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Aside from providing incentives for employees to produce outstanding work, bonuses the main way that banks compete for top talent. Banks choose to attract top talent via performance based incentives which reward money whereas Silicon Valley firms choose to compete for talent by offering unique cultures which often come with offices filled with innovative perks (Nintendo Wii's, pool tables, you name it). If banks are going to, and need to, ask employees to work long, tireless, stress-filled hours they have to provide them with the right incentives and let's be honest, money talks. I think it helps to frame the situation like this: How do engineers decide which jobs to take in Silicon Valley? It's a complex algorithm involving money, friends, brand name and free food. How do those who want a career in finance make their decisions? Its a combination of brand name, opportunity for advancement and the strength of the pay for performance system. In the end, I feel the fundamental logic behind bonuses is strong, its just the nominal dollar amounts that needs to be fixed.
Yeah man good stuff, but I think everyone is up in arms because they hear stories like Merrill Lynch losing $15 billion, and John Thain still asking for a $10 million dollar bonus and his $1.2 million in office decorations (including the infamous 35k toilet). I do think bonuses are an important aspect of the financial system, but they should be structured in such a way where the actions that workers take benefit the firm not only for the fiscal year, but also for the long term.
ReplyDeleteYour post is both interesting and accurate. You are right that it is strange that some can be allowed to take home so much while others are losing. Still we have to understand, as you have said, that bonuses are based on performance. The counter argument then becomes, 'well if they performed so well' why is their company making massive loses. Then we could argue that it would have been worse were they not there. Althouh it's not as cut and dry as this, imagine the following: Company X is at -10. But without the performance of the execs, it's -18.5. Both are negative but relatively the former is better, thus you reward them. Malc don't rip me too much for my simple and perforated analysis. I know you are an elite businessman.
ReplyDeleteWere I those execs, I would give it back to the company, but I'm not. People need to relax a bit. They are being compensated based on their value. VALUE! It reminds me of athletics. Many individuals hate the ideas that athletes get paid millions to throw a ball, kick a ball or hit it. They don't understand the value of the these players. If they did, they would understand that the athletes generate an exorbitant amount of revenue in their respective sports. So they just be compensated accordingly.
Besides these bonuses, although I don't know the exact details, are contractual. If you fail to give them their bonuses, what does that say about capitalism and more importantly contract law.
Olu
Thanks for the comments guys (a little late I know) but regardless your insights are appreciated. Jmyst23 I definitely agree, bonuses should be structured for the long term. Olu, you bring up a good point about value. I definitely agree that once people understand the value of athletes and/or employees, it lessens the harshness of their sentiments against these people. In terms of the contractual law, I think that bonuses are more implied than contractual, but i'll find out this summer and let you know.
ReplyDelete