This story on the New York Times site provides some great information on the absurd largesse of Wall Street’s mortgage-sector paydays, while revealing some of the oddities of the Times’ style. It’s teased on the home page thusly: “As regulators sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle.”
Gee, d’ya think ginormous bonuses based on short-term profits might have skewed the incentives and made the financial whizzes too eager to take on risk? What might the answers to those questions be?
The article also offers this interesting tidbit:
For now, most banks are looking forward rather than backward. Morgan Stanley and UBS are attaching new strings to bonuses, allowing them to pull back part of workers’ payouts if they turn out to have been based on illusory profits. Those policies, had they been in place in recent years, might have clawed back hundreds of millions of dollars of compensation paid out in 2006 to employees at all levels, including senior executives who are still at those banks.
It’ll be interesting to see how the companies fare if they actually try to pull back cash from their employees in the future. As the story makes clear, bonuses account for the lion’s share of compensation for a very large number of workers at these firms. It’s hard to imagine that much of that money will be recoverable once it’s paid out.
Which is the whole problem, of course. The best move for the future would be not to rescind bonuses that turn out to be based on fake profits, but to develop a compensation structure that’s not so geared toward profit-based bonuses in the first place.