The rambling thoughts of a Modern Orthodox Chassid (whatever that means). Contact me at emansouth @

Wednesday, February 18, 2009

Unintended Consequences: Pay Restrictions

Does Congress understand that, without its help, Wall Street pay got hammered this year, is going to get hammered next year (and probably in 2010 as well) and that imposing idiotic pay restrictions (that no one can figure out) is going to backfire.

I don't have time to explain just how stupid it is, for so many reasons, to formulaicly limit incentive pay. There will be huge unintended consequences unless this is fixed or refined.

I'm all for taking a hard look at comp on Wall Street. It was clearly broken. But guess what? The banks are figuring that out all by themselves.



  • At 10:01 AM, Anonymous Anonymous said…

    Why not go to a model similar to commission? Let the execs get bonus compensation on a sliding scale based on productivity? I think we are in real trouble now that King Hussein Obama is deciding how much people can get paid.

  • At 2:43 PM, Anonymous Anonymous said…

    forget about the traders. its us IT guys who are getting it the worst. We get fractions of our salary, as bonus, not multiples. And now we're getting nothing. Hard to pay tuition and mortgage like that.

  • At 3:17 PM, Blogger Unknown said…

    HF - In theory that's what bonuses are supposed to do, but they don't do it particularly well. (Personally I've always wondered why more places don't pay in shares of stock that vest incrementally over time, rewarding for both short and long term.)

  • At 6:24 PM, Anonymous Anonymous said…

    The banks are figuring that out all by themselves.

    I respectfully disagree. The banks were also supposed to figure out when they were overexposed to the toxic mortgage crap they took down. I believe that if there's something in it for themselves they will make things happen the way they like it. Stockholders, depositors, all be damned

  • At 10:32 PM, Blogger Gil Student said…

    The big problem is that this will lead to a brain drain on Wall St. as people go to equity funds and hedge funds when and if they can. I think the solution is simple: tax all income over $1M at some ridiculously high rate (90% ?). That's if you want to go in that direction.

  • At 8:47 AM, Blogger Gil Student said…

    Actually, my idea is dumb because it will just cause people to move to Bermuda or some other country.

  • At 1:09 PM, Anonymous Anonymous said…

    Yes, its quite sad to see the geniuses who single handedly engineered the destruction of the world economy go off to some other industry.

  • At 2:10 PM, Blogger MoChassid said…


    You could be a congressman!

    Looking at things so simplisticly is what leads to unintended consequences.

    A handful of people at investment banks were responsible for the mess. Most people who have been affected had nothing to do with it.

    Constraining pay without any thought will, as Gil says, lead to a brain drain and a migration of the best talent to unregulated companies.

  • At 10:53 PM, Blogger Unknown said…

    Exactly. More likely than the hedge funds and similar that Gil mentions are HSBC and other foreign banks grabbing the best minds in the business. It'll be great for the US when the best talent is all working for foreign banks.


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