Management by Headline II
A couple of months ago, when legislation to limit banker bonuses arose in response to AIG’s awarding $165MM in annual bonuses, I posed what I thought was a reductio ad absurdum question:
Somebody needs to explain to our president that total cash comp = salary + bonus. It’s pretty hard to find a good number for AIG’s total annual cash payroll expense, but their total headcount of 116,000 as of 12/31/08 is in the current 10K. If we assume (conservatively) total average loaded comp per person of $50K, this is about $5.8 billion per year of aggregate headcount cost for rough figuring.
$165 million is less than 3% of this number. Why isn’t everyone outraged every 10 days at this amount of money going out the door to employees — because it is labeled “salary”? Suppose AIG eliminated this bonus entirely, but raised salaries 3%, would everybody feel better?
Apparently, this is pretty much what is now happening. Outstanding.
My guess is that this is just another step in the re-emergence of a tiered financial system.
The amount of the compensation is the data, the name that compensation is given is the metadata; and if you don’t control your metadata, you don’t control your destiny in the New Searchable Era ™
— Tony Comstock · May 27, 07:37 PM · #
Critics of the traditional investment banking bonus scheme argue that bankers are compensated for short-term gain, resulting in risky and negligent behavior. Yet, paying high salaries also fails to provide incentive for bankers to seek long-term profit. Indeed, a high salary does not really provide incentive to do anything other than the status quo.
It seems to me that with a smaller percentage of their compensation directly related to short-term risk-taking, this will help put a damper on the risky behavior that caused today’s credit problems. Of course, now we want them to be taking reasonable risks in order to get investment spending back up.
Of course, neither of these reasons motivated the new compensation plans. I’m interested to see how the mainstream media react to these increased salaries.
— Brad · May 27, 08:39 PM · #