the-simplest-way-fix-banking-end-bonuses

[BigDog]

Originally Posted by Maestro

To BigDog point, I many not understand how Banking and the Investment Industries bonus work. However I have worked for plenty of High tech companies who have all sorts of reward or bonuses plans for their employees. I have participated in most all of them over my career so Yes I like the perks and would not like to see them go away.

However I can say that every company I worked for never paid out the perks at the cost of share holders, employees or its customers. They also do not pay out massive x times the pay bonus to employees included the CEO.

I have no problem with people get reward for doing good or great things, but in banking and investment most time they are not doing good or great things, they just happen to benefit from others success. I know this a simplistic example, but why should a broker get a big bonus because he convince someone to buy Apple stock and then convince them to sell Apple stock when it jump 100 points. They did nothing here Apple employees created the wealth in Apple not some broker convincing some one to buy and sell, or better yet short the stock and create all sort of FUD about the company so they can make more money on the way down.

If these Banking industry felt so strongly about what they were doing then give everyone shares in the company verse cashing them out, no incentive to keep doing well since they know they already got all the cash before the shareholders and such.

Also when companies are in trouble and they bring in new management, if they are really that good do not pay them, give them stock and a $1 pay check. Since they will really hurt if they screw up and the upsides are greater if they are as good as they think.

Maestro, you're only taking a one sided view on this.... the finance industry does provide a valuable service to you on some of the most basic levels....

Lets take the AAPL example you mentioned... in order to buy or sell that symbol you as a retail investor are going to be crossing the spread each time (buying the offer, selling the bid).... had the finance industry not been as prevalent.... you'd be loosing your shirt to cross the spread each time you'd want to exit or enter your position (bid/ask spread would be extremely wide).... by doing something as simple as providing liquidity, you're profiting every time you decide to execute the trade.... now multiply you by everyone else that wants to buy or sell..... its an astronomical figure.... so though it may seem of little value to you on the surface.... there is a significant value to it...

[MidwestGolfBum]

Originally Posted by KingOfJericho

This. Most hospitals are also corporations with doctors as their CEOs. Do you think they're not getting bonuses based on the profitability of their facility?

When we sell into the IT departments and it doesn't work for the docs, it doesn't matter how much something else will cost, they get what the docs want. Hell one of the large healthcares that I sell to recently switched from one EMR vendor to another because the docs liked it more. Wrote a $100MM check to do it too.

Shah, the docs run the place, no matter what anybody else in the organization tells you, they do. They are the only ones who make the org any money and because of that, they get their way nearly 100% of the time.

[shah269]

Yeah but we have strict rules regarding doctors giving you and i pills and getting a kick back.
They are doctors...not drug dealers.
So they are not taking a risk on my health to make money.

And I want that in my financial health as well....

Yeah you have a few mill good....play with your own stinking money...don't you freaking touch or have any influence on mine! I'm in it for the long run not quarter to quarter!

[BigDog]

Originally Posted by shah269

Yeah but we have strict rules regarding doctors giving you and i pills and getting a kick back.
They are doctors...not drug dealers.
So they are not taking a risk on my health to make money.

And I want that in my financial health as well....

Yeah you have a few mill good....play with your own stinking money...don't you freaking touch or have any influence on mine! I'm in it for the long run not quarter to quarter!

shah, that is very very naive...

the doctor is DEFINITELY taking a risk on your health to make money....

and as far as taking risk with your money.... well its up to you to allocate it to a risk free investment.... but don't complain when your risk free investment is also return free.....

[shah269]

my doctor is taking a risk with my life...to make money....
Ok this one I have to ask....how?

I go in for my 6 month check up....I'm good i'm out!
He's not telling me to take these hand full of pills because he gets a kick back from the pill makers...

The article states, we can't prosecute bad actors who cause global melt downs.
But we can do is reduce the collective reward associated with collective risk taking.

It’s like this. Say truck drivers didn’t have to follow the speed limit and they were killing folks every now and then.
But truck drivers were incentivized to drive fast from point A to point B. The faster they drove the more money they would make which would also mean the more risk there existed on the open road.
Well enough people have died and now we are going to make the truck drivers follow the speed limit….ie reducing the bonus structure so as to reduce the risk to the rest of us caused by their risky actions. And if things go do wrong, which they may….the resulting accident won’t be as bad.


Or would you like us to impose the death penalty on those who take extraordinary risk to obtain extraordinary bonuses when those risks fail?

I like option 2 better...it makes for better TV.

[KingOfJericho]

Why are you equating seemingly outrageous risk to reward? Many positions in this industry involve zero risk, however bonuses can still be a multiple of ones salary. Many positions are in research and publication. How are they taking risks? I would like to know, specifically, what you're talking about because you're painting the industry with a very wide brush and a seemingly limited understanding.

[shah269]

King i'm just posting based on what I learned from my EMBA and the article and my personal knowledge of how people behave.

Take a moment to check out the article. It says "Bonuses exceeding 100% of the persons income"

In effect that improves your base income...more stability for you...which can't be a bad thing right?
And more stability for me as the bystander for it does not incentivize you the guys and gals in charge of the ship to make any over adventurous moves.

How can i put it....it's a game changer. Instead of thinking quarter to quarter trade to trade....to force the industry to think year to year. And so reduce volatility.

[KingOfJericho]

That's just my point - bonuses are compensation for a good year. Bad year? Bad bonus. It's a way to drive performance. You don't have massive research teams only to make risky blind bets. That's the point of doing research. In essence, GOOD investment decisions are those being rewarded. You won't be getting a bonus if you're losing your clients money.

Also, you don't have to be a trader to get paid in bonuses. I've never made a single trade outside of my personal account and the vast majority of my compensation is bonus derived.

I'm also not sure why they always say "banker" when they have almost nothing to do with risky trades.

[shah269]

Look at those great guys at the credit rating agency....talk about risk taking!
And how well did that work out?

Long and short of it, the system is broken. Volatility is too high and trust is at an all time low.
So we either start shooting people or we reduce the reward for high risk taking?

[KingOfJericho]

Honestly, is this thread from 2008? Did you take a DeLorean to work this morning?

[KingOfJericho]

Originally Posted by shah269

Look at those great guys at the credit rating agency....talk about risk taking!
And how well did that work out?

Long and short of it, the system is broken. Volatility is too high and trust is at an all time low.
So we either start shooting people or we reduce the reward for high risk taking?

1) Employees at ratings agencies aren't the same people getting massive bonuses.

2) Volatility is the lowest it's been in six years.

3) Investors should be aware of their own risk tolerance. If you have a low tolerance, then distressed bonds are probably not your bag - look to annuities or CDs, but don't piss and moan that they pay next-to-nothing. If you want high returns, you need to take risks. It's as simple as that.

[BigDog]

Originally Posted by shah269

Look at those great guys at the credit rating agency....talk about risk taking!
And how well did that work out?

Long and short of it, the system is broken. Volatility is too high and trust is at an all time low.
So we either start shooting people or we reduce the reward for high risk taking?

Volatility too high?!?!?


You honestly have no clue what you are talking about

[bing240sx]

I didn't read many of the responses but irrespective of the psychological arguement employed by the anti-bonus movement any progress with their agenda will be a zero-sum game and to the detriment of the states or countries that pursue it.

All a company has to do to get around anti-bonus is change their compensation plan away from bonuses and into dividends by adding a meaningless share-class with discretionary dividend rights, handing out these non-voting, zero-value shares willy-nilly and base the dividend off of personal or unit performance. It's exactly the same thing as a performance bonus but taxed at a lower rate than bonuses taken as personal income and falls into a different category of compensation that the anti-bonus crowd can then spend the next 5 years campaigning against. After which the MNC's will move into a new comp plan to get around it.

re: flight of bankers if they don't recieve bonuses... they'll move into private equity or some other part of the industry that still properly compensates them for their performance. They will be backfilled by people who are only worth a salary who will not be incensed to earn infinitely increasing returns for shareholders.

All compensation should be elastic... if you can drive a billion in returns for a company you should be able to earn a commensurate percentage of those gains (if you've properly negotiated).

capping compensation just puts more $ back to shareholders whose gains are taxed lower than employee bonuses again.

anti-bonus people are just shitty people in general.

i wouldnt get out of bed and show up on time 5 days a week for under $200k a year but that sounds super ignorant to people who will never even earn 6 figures.

[bing240sx]

Originally Posted by shah269

They are doctors...not drug dealers.

I lolled!

*EDIT

and sorry, forgot to add a solution proposition... got caught up in the rant.

The only effective solution to this is to apply a balanced scorecard approach to performance compensation.

Reward performance efficiency that factors in risk and compliance on to the returns generated and you will effectively manage behaviour. Taking too much risk on a hedge or bet will then not yield the bonus impact irrespective of the returns gained.

Traders will then be incensed to take compliant risks and seek out returns that do not put shareholders or the public at risk beyodn warrant.

Apply some environmental bullshit in there too and it's a triple win broooooo!!!!

[shah269]

>>>>>capping compensation just puts more $ back to shareholders whose gains are taxed lower than employee bonuses again<<<<<

Hi! I'm a shareholder and I would like to say HI! And yes please do!
Send me more money thank you!

And look honestly...there is no policing the finance industry...there really isn't. Accountability is at an all time low and those who do bad seem to get away with it.

So anything to reduce the incentive of taking huge risks in very fragile global financial environment....I'm all for!

[BigDog]

Originally Posted by shah269

>>>>>capping compensation just puts more $ back to shareholders whose gains are taxed lower than employee bonuses again<<<<<

Hi! I'm a shareholder and I would like to say HI! And yes please do!
Send me more money thank you!

And look honestly...there is no policing the finance industry...there really isn't. Accountability is at an all time low and those who do bad seem to get away with it.

So anything to reduce the incentive of taking huge risks in very fragile global financial environment....I'm all for!

if you want more money, then take the risk....

stop crying in your corn flakes about people making more money than you.... that's essentially all this is.... that along with the fact that your basic knowledge of the industry is completely lacking....

[shah269]

>>>if you want more money, then take the risk....<<<
OR how about we cut the bonus structure in half and the shareholders...AKA me and my 401k get more money?

You can't be angry at me for wanting a lower overhead can you?
If you do...you know there are guys in China who will do your job at what....half price?
And India as well.

NO JOB is safe in a global marketplace. And whoever is willing to do the job at the lowest price point will have that job.

Heck I bet, I could get a someone to do the job at a base salary of $45k and a bonus of another $45k from India or China who is equally talented and equally qualified.

[MidwestGolfBum]

Originally Posted by shah269

>>>if you want more money, then take the risk....<<<
OR how about we cut the bonus structure in half and the shareholders...AKA me and my 401k get more money?

You can't be angry at me for wanting a lower overhead can you?
If you do...you know there are guys in China who will do your job at what....half price?
And India as well.

NO JOB is safe in a global marketplace. And whoever is willing to do the job at the lowest price point will have that job.

Heck I bet, I could get a someone to do the job at a base salary of $45k and a bonus of another $45k from India or China who is equally talented and equally qualified.

What you are not getting is that if you take away those incentives you aren't going to have the same quality of person doing the work and will earn either the same or less money...

[BigDog]

Originally Posted by shah269

>>>if you want more money, then take the risk....<<<
OR how about we cut the bonus structure in half and the shareholders...AKA me and my 401k get more money?

You can't be angry at me for wanting a lower overhead can you?
If you do...you know there are guys in China who will do your job at what....half price?
And India as well.

NO JOB is safe in a global marketplace. And whoever is willing to do the job at the lowest price point will have that job.

Heck I bet, I could get a someone to do the job at a base salary of $45k and a bonus of another $45k from India or China who is equally talented and equally qualified.

So you're assuming that by cutting the bonus structure in half... that amount will be distributed to you and therefore shareholders will be making that much more?

Again, sounds more like you're afraid to take risk, but think you deserve the reward because you're a shareholder.... you do realize your value to the firm you hold shares of is far far down the totem pole....

I'm all for lean overhead.... that's why I'm all for minimal salaries and bonus structure compensation.... you eat what you kill....

and if you find someone in India, China, hell find them in Ethiopia for all that it matters.... by all means let them work, start them with a low base salary and reward them via bonus....

[bing240sx]

Originally Posted by MidwestGolfBum

What you are not getting is that if you take away those incentives you aren't going to have the same quality of person doing the work and will earn either the same or less money...

I think he is 'getting it' but suggesting that, relatively speaking, $45k USD in India or China is like making $300k in the US...

I bet you really could off-shore a lot of the finance jobs in the US overseas... certainly any job that is not client-facing could be outsourced.

[shah269]

Originally Posted by MidwestGolfBum

What you are not getting is that if you take away those incentives you aren't going to have the same quality of person doing the work and will earn either the same or less money...

Last year I visited Shenzhen university in China....you want to talk about quality of people!
8 million people because they stopped counting...and what...maybe 30k spots at the university...you tell me who got into their business school and who didn't? And you are going to tell me that these guys and gals…who were all borderline geniuses in math and economics are of “lower quality”?

These are the "kids" who reverse engineered the Chinese stealth fighter!

Did I mention they were fluent in English?

You name me the white collar job, and I can either replace that person with someone in SEA or an computer.

The only safe jobs are mechanics and plumbers.

And if I as the shareholder want to reduce my overhead associated with doing business and reduce overall risk in the market…I should be looking at these brilliant folks and pay them….aaahhh….what? $45k base and $45k bonus?

How can the average person loose?
After all what percentage of your major wall street companies expenses is in the form of compensation?
In some cases the yearly compensation is more than the value of the building…and this is in NYC!

So…..for me as a share holder tax payer….is this not a win win? Reduce excessive risk taking? And reduce overall cost of doing business?