End Bonuses for Bankers

What do you think? End Bonuses for Bankers http://www.nytimes.com/2011/11/08/opinion/end-bonuses-for-bankers.html?nl=todaysheadlines&emc=tha212

I do agree with a lot of what Taleb says. In particular, asymmetry of risk - creates the incentive for higher risk, since there is a large upside if things go well and very little or no downside if things go sour. Not sure executing 10% of bankers is really a viable solution though.

ppl should have skin in the game as I have advocated on here before. compared to non-government & non-labour union workers, bankers are overpaid.

Completely eliminating bonuses is probably a bad idea. Every industry gives bonuses as performance incentives. Lawyers get bonuses, engineers get bonuses, autoworkers get bonuses etc. A *lower* proportion of bonuses relative to total compensation would probably be a good idea, due to the asymmetric incentives.

If we don’t give bonus to bankers what will they be making? say on an average a banker makes around 100K and lets say he works like 80hours for around 45 weeks. So he would be making around $28/hr for such a high stress job. I think its not fair for such high stress job to make such less amount of money. I think one solution might be by not allowing any financial institution to receive any kind of taxpayer bail out funds.

I think that institutions that receive taxpayer bailouts shouldn’t be paying large bonuses. What “superior work” did they do, exactly? Now, of course, the bailouts were a few years ago so they will probably argue that aspect. If investors would rather their banks spend shareholder wealth paying management large bonuses, well, thats what shareholder meetings and boards of directors are there to oversee.

Banking should go back to being a boring job that allocates capital efficiently to the most productive enterprises i.e. acting middle men to the real drivers of economic performance.

No one said that overall compensation has to decline proportionately with bonuses. Banks can just increase salaries. This would decrease incentives to take risks, and maintain compensation levels that are proportionate with each person’s marginal contribution to revenue. Plus, in reality, part of the “bonus” is actually guaranteed for most bankers. So, some of the “bonus” is actually salary, just with a different name.

Furthermore, we should realize that if salary constitutes a higher proportion of banker compensation, they don’t have to be paid as much. If my expected compensation was 50/50 bonus/salary, I would probably be willing to accept 10/80 or so, since I would get the security of fixed compensation. The savings on compensation costs would help offset the loss in bank revenue from taking fewer risks.

Besides, who says just because a person’s job is “high stress,” they should get exorbitant salaries? If that’s the case, police officers and soldiers should be making 100 times what any banker makes. In regards to the pay, I think people are only saying that the structure should change, not necessarily that all bankers need to take a huge pay cut. Just remove (or limit) the bonus incentive and give better salaries instead.