Guest Post: Should We Abolish Bonuses?

Submitted by Leo Kolivakis, publisher of Pension Pulse.


More “bonus outrage”, this time from Fannie and Freddie:

Continuing bonuses paid to employees at Fannie Mae and Freddie Mac are offensive since taxpayers are helping keep the mortgage-finance companies afloat, a leading Senate Republican said on Friday.

“It’s an insult that the bonuses were made with an infusion of cash from taxpayers,” Charles Grassley of the Senate Finance Committee said in a statement. “The elite in Washington and New York need to realize that bonuses for poor performance and at taxpayer expense do a lot of damage to public confidence.”

The bonuses for 7,600 employees will total about $210 million over 18 months, the Wall Street Journal reported on its website, quoting a letter to Grassley from the director of the Federal Housing Finance Agency, which regulates the companies.

About $51 million in bonuses was paid in late 2008 and the rest is to be paid in 2009 and early 2010, the newspaper said, quoting the letter from James Lockhart.

The largest bonus for any individual will total $1.5 million, the newspaper said.

Grassley, an Iowa lawmaker, has been a strong critic of executive bonuses paid out by finance companies that have lately had to rely on government aid.

During a public uproar last month about bonuses paid out at failed insurance giant American International Group Inc., Grassley said executives should “follow the Japanese example” and “resign or go commit suicide.”

AIG was under fire for paying out $165 million of bonuses despite a series of taxpayer bailouts for the company totaling $180 billion. Fannie Mae and Freddie Mac have also had to rely on a huge helping of government aid since they were nationalized in September.

Still, while several AIG executives received multimillion-dollar bonuses, the extra pay at Fannie Mae and Freddie Mac is being spread much more evenly across the companies.

Lockhart wrote that the pay plan includes “many hard-working lower-level employees which are important to the mission of providing stability, liquidity and affordability to the housing market.”

Lockhart wrote Grassley last week that bonuses were a key component of pay for more than 7,500 employees at the two companies.

When other lawmakers have questioned the payments, Lockhart has defended them as an important defense against employee attrition.

Herb Allison, the government-appointed overseer for Fannie Mae, has also vowed to try and preserve the employees’ compensation.

“I understand your deep feeling that repudiation of the terms of the retention plan … would be a breach of faith,” Allison wrote in a memo to staff last month.

The blistering public anger over the AIG bonuses has subsided a bit in the last two weeks after lawmakers vented voter outrage at congressional hearings and drafted legislation to tax the payouts.

Congress will be in recess for the next two weeks, so the political pressure to cancel executive bonuses might further subside.

I saw Bill Moyers’ recent interview with Bill Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s (click here to watch it).

I sent it along to a few friends to get their comments. One of them, Tom Naylor, author of several books including the international best seller Hot Money and the Politics of Debt, wasn’t impressed.

I called Tom to chat. He told me that guys like Black love “conspiracy theories” but they miss the bigger picture, namely, the “the whole financial system and the incentive structure that supports it is corrupt.”

We started talking about bonuses on Wall Street and at pension funds. Here was some of our exchange as I recall it:

Me: Tom, I see two systems developing, one where public sector workers get cushy pensions and one where private sector workers see their retirement dreams evaporating in front of their eyes.

Tom: That’s why we need one state pension system which guarantees pensions for everyone. This notion of defined benefits for some and defined contributions for others is stupid.

Me: Yes, I agree, but I am against one mega fund where power is concentrated in too few hands. Interestingly, before CPPIB or PSPIB were created, pension contributions were invested in non-marketable government bonds.

Tom: Precisely, they were safe and now they are at the mercy of Casino Capitalism.

Me: You didn’t think much of that Bill Moyers’ interview?

Tom: No, I didn’t think much of it. Black is missing the bigger point thinking you can regulate a better system but the problem is that the whole financial system, and the perverse incentives that feed it, are corrupt. The meltdown exposed this. I would abolish bonuses all-around, including at pension funds.

Me: Really? That is blasphemy! They will say you are against financial innovation!

Tom: So what? Let them get a real job if they don’t like it. These people are social parasites. They’ve innovated so much that they brought the whole global financial system to its knees, causing social devastation as unemployment soars around the world.

Me: But what about fixing the incentives like fixing the benchmarks?

Tom: You know they will always find a way of tinkering with the benchmarks. Besides, benchmarks are part of the problem because they compensate people for taking reckless risks.

Me: True, but I still think we need to fix these benchmarks and introduce performance and operational audits at pension funds by independent industry experts. Also, I would introduce high-water marks so these pension funds have to recoup their losses before doling out one dime of bonus. Finally, unlike hedge funds, senior executives at pension funds do not have skin in the game. They are paid way too much for delivering “alpha” based on bogus benchmarks.

Tom: Yes, and the lion’s share of their performance should be based on ten year returns. I would hold them to that and if someone leaves prior to delivering those returns, I would introduce a clawback on any previous bonuses, as you stated on your blog. But if you ask me, just abolish bonuses altogether and pay them salaries.

Tom and I had a follow-up conversation on “profits” and how bonuses should be tied to real profits, not perceived profits based on some accountant’s valuation. “Either they have the money in the bank after a certain period or they don’t”.

That is why in private markets, I always liked the notion of cash on cash returns. What was the value of the investment at cost, and what was it once you exited? It’s that simple notion of “profit” that we have distorted using all sorts of accounting shenanigans that’s gotten us into this mess.

Another senior pension fund manager shared these thoughts with me following my last comment on Ontario Teachers’ disastrous 2008 results:

Boards know what is going on. They liked the idea of outperforming while the sun shines. The choices are the problem. The benchmarks are just games, a bit of a distraction, really, everyone knows the games and goes along with them.

I would suggest that pensions stop reporting benchmarks and report profits and losses like a regular business.

The benchmarks can just be risk and compensation tools, but compensation should be capped. Pension law could be changed to preclude or cap leverage, properly defined to catch the derivatives approaches. This is the main risk factor that has been exposed in the times.

So let me know what you think, should we abolish bonuses altogether in the financial industry and at pension funds or just abolish benchmarks and cap compensation and leverage?

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38 comments

  1. NOT a REAL American

    Ahhh, survival of the fittest – working as always.

    While the peasants and the idealists (of course) might complain, the unavoidable truth is that the scammers will ALWAYS win, and HAVE always won – all throughout history. In fact, the peasants WORSHIP (sometime literally) the scammers. This is because, the real people (the “common man”) understands that the scammers ARE the best of society and most people would run the same scams IF they had the opportunity to do so.

    Personally, I think we should stop complaining about the scammers. They’ve used their intelligence and cunning to game the system and won. Congratulations to them. I wish I had their foresight (and intelligence and cunning).

    It makes NO sense to complain about reality. But, it does make sense to learn from the best and brightest of American society. It also makes sense to educate the next generation (at least our OWN children) on how to win in America.

  2. wintermute

    “pay plan includes many hard-working lower-level employees which are important [etc etc etc]”

    That’s what a SALARY is for! People are paid to work hard and do their job. If a bonus is required to boost a salary – then this reduces transparency of that salary to the market.

    Labour is an important product – and therefore it can only be priced properly by the market. If people are not paid enough then there will not be enough qualified potential workers in the market for the position offered. Salaries have to rise. If they are paid too much or there is unemployment of qualified people then salaries should be able to fall. This is efficiency. This encourages people to choose career paths based upon demand and supply.

    The bonus culture is yet another distortion of free markets as it reduces price transparency of labour.

    Surely one of the main lessons from the credit crisis is that distortions in markets always cause more harm than good. Capitalism is blamed for not working – but it is not able to work properly with so many price obfuscating distortions everywhere from NINJA loans boosting housing prices to Fed manipulation of interest rates.

    Somehow we have to get price transparency back into all markets including labour. Killing the bonus-culture is progress.

  3. NOT a REAL American

    And WHO – exactly – is going to “Abolish” the “Bonus culture”. The people getting the bonuses? The people owned BY the people getting the bonuses. Why WOULD they?

    Jeeez, gimmy a break here. Everybody is talking like there’s some-sorta “representative government concept” in America.

  4. Economic Darwinism

    Talk of abolishing bonuses is silly. However, I think more effort should be put into determining appropriate bonuses. For example, performance bonuses based on one year encourage short term thinking. Bonuses should be based on multiyear performance and if an investment goes bad, there should be a mechanism for clawbacks.

    I also disagree with Tom Naylor’s criticism of William Black’s interview on Bill Moyers Journal. If you watch the video, he clearly identifies bonuses as a major enabler of fraud.

    By the way, I’ve provided some key quotes from the Black interview here:

    Modern-Day American Hero: William K. Black
    http://economicdarwinism.wordpress.com/2009/04/04/modern-day-american-hero-william-k-black/

    PS: Black is the second “Modern-Day American Hero” entry after Yves.

  5. vlade

    I say eat what you kill – including the botulism if your kill turns blue.

    Who wants food safety should stick to a supermarket (=salary, no bonus).

  6. jest

    I think there is a reasonable rationale for bonuses. The problems are that they are well in excess of base pay, and are short term driven.

    I think they could still get bonuses, but it should be a capped percentage of base pay.

    Or

    Create a vesting schedule for bonuses. In your 1st year, you get 15% of your nominal bonus. Over time you get fully vested. But if you do poorly, the unvested amount gets forfeited.

  7. Anonymous

    How about a T-shirt ? “I destroyed capitalism and all I got was $350 million over 5 years”.

  8. wintermute

    Whether bonuses are capped, follow a mutli-year vesting schedule, or face clawbacks – or are banned: these are all regulatory/interventionist solutions.

    The alternative is to leave things how they are. Clearly the consensus is that this area needs regulation. The next debate is how to do it.

  9. DanyBoy

    When Worlds Collide:

    Rather than the ah_ha moment that revolutionaries experience when finally storming the palace, this has more of a 50s sci-fi feel.
    -Intelligent life (who knew?) escaping a dying solar system (Mother Merrill, Papa Bear)seeks refuge on earth.
    -At first the earthlings are distrustful. They call out the army, the president, the UN. They threaten to destroy the aliens with nuclear weapons and pitchforks!
    -The aliens promise earthlings a bright shining future complete with eternal sources of wealth(quantitative easing and alphabet soup of silly Fed tricks) and inexhaustible energy supplies(wind, solar, cow_wind)
    Two endings possible:
    -1) Earthlings destroy the aliens out of fear of becoming “one of them” and are left to squabble amongst themselves
    -2) Aliens dupe earthlings into giving up nuclear launch codes, enslave them and begin mass earthling consumption in order to start reproducing again

  10. Leo Kolivakis

    Please note, I added the following to my post:

    Tom and I had a follow-up conversation on “profits” and how bonuses should be tied to real profits, not perceived profits based on some accountant’s valuation. “Either they have the money in the bank after a certain period or they don’t”.

    That is why in private markets, I always liked the notion of cash on cash returns. What was the value of the investment at cost, and what was it once you exited? It’s that simple notion of “profit” that we have distorted using all sorts of accounting shenanigans that’s gotten us into this mess.

  11. Anonymous

    NOT a REAL American said…

    “And WHO – exactly – is going to “Abolish” the “Bonus culture”. The people getting the bonuses? The people owned BY the people getting the bonuses. Why WOULD they?

    Jeeez, gimmy a break here. Everybody is talking like there’s some-sorta “representative government concept” in America.”

    Ditto that!!!!!

    Deception is the strongest political force on the planet.

    i on the ball patriot

  12. hexagram

    Once again, Grassley and the Republicans are focusing on the red herring of bonuses. That’s either because they are stupid or, more likely, they don’t want to alienate the capital market players who are getting trillions in subsidies to companies in which they have a financial interest. It’s easier for Grassley to fulminate against bonuses than to recommend that Citibank and BofA, etc., be put into receivership, the equity holders wiped out and the debt-holders take a huge haircut. I.e. recognize insolvency when you see it. His reluctance doesn’t stem from fear of “nationalization”. It stems from a deep-seated bias in favor of the monied calss in America, who stand to lose a lot if the situation is recognized for what it is.

  13. Viv

    The only bonus these A**holes should get is an extra piece of bread for lunch in prison.

    If someone sells you substandard goods, milk, food, services e.g. medical malpractice. These people can be sued and sent to prison for committing a crime.

    Yet if you sell substandard financial products we’re discussing abolition of bonuses??

    Leo you do some great work but seriously you need to advocate for these guys to pay for their crimes against humanity.

  14. Dave Narby

    ALL BONUS.

    WITH A 100% CLAWBACK CLAUSE IN CASE OF FRAUDULENT BUSINESS ACTIVITIES.

    …AND A TEN YEAR STATUTE OF LIMITATIONS ON SAID.

    JAIL TIME IF YOU CAN’T PAY IT.

  15. Anonymous

    Instead of abolishing bonuses, let’s abolish either pension fund managers or pensions altogether. If we have to have pensions, then let’s have them invested in safe-and-simple U.S. treasuries. Very little management should be needed.

    The real problem is this small class of people managing ‘other people’s money’. Pensions are just a way for the government to mandate that some portion of your salary go to a fund that is managed by someone who is not you.

  16. Anonymous

    Sounds some what like a pointless mental masturbation question, the sheep will be fleeced as they have always been fleeced at the hand of their government and the elite like they have been for like ever. Some things never change.

  17. Anonymous

    People's anger is misdirected. What we need is a progressive taxation system like this:

    <$10,000 0
    $10,001-20,000 2%
    $20,000-50,000 4%
    $50,000-100,000 6%
    $100,000-150,000 8%
    $150,000-200,000 10%
    .
    .
    .
    1-2 million 30%
    2-3 million 35%
    .
    .
    .
    50-60million 80%

    and so on…

    E.g. If your income is 59,000, you pay 200 + 1200 + 360 = 1760, your effective tax rate is 1760/59000 = 2.98%

  18. Lucifer

    Sadly that is not true.. think about why I used the word ‘sadly’

    Change does occur, but it is usually preceded by destruction of the older system. We have reached that stage because our economic religion has not kept up with our technological growth. The funny part is we cannot really “go back”. Emergent systems are not reversible.. but you will find that out the hard way.

    Without the triassic extinction- dinosaurs would not have become dominant, without the cretaceous extinction- dinosaurs would not have gone extinct.

    Without the black death- you would not have had a renaissance and it is the long term changes caused by the industrial revolution that ultimately destroyed west european colonialism.

    “Sounds some what like a pointless mental masturbation question, the sheep will be fleeced as they have always been fleeced at the hand of their government and the elite like they have been for like ever. Some things never change.”

  19. Blissex

    «”pay plan includes many hard-working lower-level employees which are important [etc etc etc]”

    That’s what a SALARY is for! People are paid to work hard and do their job. If a bonus is required to boost a salary – then this reduces transparency of that salary to the market.»

    Entirely agreeable comment.

    Well, some important work organization theorist argued that pay-for-performance reduces performance. And some serious economist argued that the common practice of piece-work compensation in the UK lead to poor productivity.

    These are fairly well known arguments supported by somewhat extensive historical and quantitative evidence.

    The base reason is that people don’t really work for money (they are *employed* for money), and making money the primary or only motivator drives bad behaviour.

    The reason why performance-related pay is common is not because it “works”, but because it is a figleaf to make pay more arbitrary, that is more controlled by management whim, while providing a political figleaf.

    “eat what you kill” in a complex organization where cost allocation is at best difficult is an essentially meaningless concept.

  20. Anonymous

    Under a law that took effect last year, underfunded pension plans may be forced to limit lump-sum payments and suspend cost-of-living increases for retirees. In addition, some plans could be frozen, preventing current employees from earning credit for additional years on the job.

    “Companies are going to have to make drastic decisions about their pension plans,” said Peter Austin, executive director of BNY Mellon Pension Services, which advises businesses on retirement plans.

    The law has already started affecting some local employers. For instance, Boston book publisher Houghton-Mifflin Harcourt Publishing Co., notified its 5,000 employees last week that effective April 1 they no longer have the option of receiving a lump-sum payout at retirement. Now, they can only receive half the money, with the rest paid in traditional monthly payments.
    http://www.boston.com/business/personalfinance/articles/2009/03/25/pension_plan_choices_may_shrink/

    Some of these folks won’t have to worry about it they are already screwed with a capital S

  21. Blissex

    «People's anger is misdirected. What we need is a progressive taxation system like this:

    <$10,000 0
    $10,001-20,000 2%
    $20,000-50,000 4%
    $50,000-100,000 6%
    [ … ]
    2-3 million 35%
    [ … ]
    50-60million 80%

    and so on…»

    There is also my Modest Proposal for a Real American Progressive Taxation system, which I shall repeat here.

    A Real American like Prof. Gramm knows that all progress comes from the work of the best and brightest, those who produce most, and that if they are incentivized they will produce more. Also, that which gets taxed most is punished and less of it will happen, and what is taxed least is rewarded and more of it will happen.

    The plan then should be to foster progress and work towards taxing poverty into history like this:

    * 50% undeserved income tax rate for the economic saboteurs and parasites that contribute less than $30,000/y to the national income.

    * 35% unearned income tax rate for the slow, not-trying hard enough layabout who only contribute less than $60,000/y to the national income.

    * 25% earned income tax rate for the barely productive people who contribute less than $100,000/y to the national income.

    * 10% deserved income tax rate for those productive enough to contribute up to $500,000.

    * 10% Extra Incentive Tax Credit for those heroes of the USA economy whose productivity contributes at least $1,000,000/y to the national income.

    :-)

  22. Anonymous

    Blissex,
    By your logic the PhDs and postdocs doing research in universities are economic saboteurs and parasites.

    I wonder how that works…

  23. Anonymous

    The employees of the Washington Metro elected a Maoist as their union president in 2004. (Due to some complicated union politics, everyone with sense got behind him to defeat someone worse.)

    Putting your pension investments in the care of someone who doesn’t believe in capitalism between 2004 and 2007 was a very smart move. The pension fund is down somewhat, but I’m sure the Ontario teachers are envious.

  24. Anonymous

    “No one expected the French revolution.”

    Good insight. No one expects such a thing can happen here either. When it does, look out.

  25. Leo Kolivakis

    Speaking of Larry Summers:

    Lawrence Summers, President Barack Obama's top economic adviser, earned millions over the past year as managing director of the hedge fund D.E. Shaw Group and through speaking fees, some from financial institutions now at the center of the government's rescue program.

    Financial disclosure reports released by the White House show that Summers received $5.2 million from D.E. Shaw. He also reported payments for appearances before institutions such as J.P. Morgan, Citigroup, Goldman Sachs and Lehman Brothers.

    Overall, Summers was paid $2.7 million for more than 40 appearances before different organizations and companies, including financial institutions.

    >>Read all about it here:

    http://www.google.com/hostednews/ap/article/ALeqM5iATnAtm1YTN3QRW6xWynhykW5RcwD97BSFQG0

    Now we know why Obama's economic team is pandering to hedge funds and private equity funds.

    What a disgrace.

    Regards,

    Leo

  26. Anonymous

    tom sounds like sour grapes that Bil Black and not he got air time. his criticism suggests he didn’t even bother to watch the interview, what a putz

  27. Harlem Dad

    Leo,

    Do it all. Abolish bonuses altogether in the financial industry and at pension funds and abolish benchmarks and cap compensation and leverage.

    We should do all of the above in order to limit our losses. We should do it to Punish. And we should do it to avoid sanctioning our own victimization.

  28. Leo Kolivakis

    Anon asks:

    "Can you investigate whether David Goldman is correct in alleging that Larry Summers was selling CDOs in 2007 when he worked for DE Shaw. http://blog.atimes.net/?p=552&quot;

    I will ask around, but it sounds to me like he was pitching the fund:

    "Summers traveled to Asia during July 2007 with a pitchbook recommending the AAA-rated tranches of collateralized debt obligations to Asian sovereign funds and financial institutions, in his capacity as a Managing Director of the hedge fund D.E. Shaw."

    D.E. Shaw might have been selling AAA CDOs, but I remember them more like an equity market neutral shop.

    In any case, Summers was probably just a glorified salesman, helping them raise their assets so they can collect 2 & 20.

    D.E. Shaw is one of the biggest hedge funds out there so 2% management fee on the billions they manage pays a lot of hefty salaries. In 2008, David Shaw of D.E. Shaw Group earned $275 million.

    Link:

    http://www.finalternatives.com/node/7437

    cheers,

    Leo

  29. SqueakyRat

    Why do we need innovation in finance? Is this like finding a cure for cancer or something? We’re not trying to send people to Mars. We’ just want to allocate capital in a reasonable way.” Innovation” in that is simply a euphemism for new kinds of fraud.

  30. Anonymous

    It’s a conflict of cultures: Government employees don’t get much bonus but they have other incentives (real or perceived stability). Investment banks give bonuses, but fire you on the fly when things don’t go well, at least that’s how it used to be. They supposed to go under according to the capitalist rules. Capitalism is being destroyed by those who didn’t let the banks and other companies fail, namely the politicians. Now that politicians created a mess they get into it even deeper by having to educate the bankers to behave as if they were government employees. If banks are that much needed because they are utilities (there are too many of them in fact) then their employees should get paid like Postal workers. And once politicians run the banks we are in deep… The problem is that they sold the public on the Tarp, Terp, Bailout I. II., until we all go down the tube.

  31. Blissex

    «the PhDs and postdocs doing research in universities are economic saboteurs and parasites.»

    That’s exactly how a Real American would put it.

    Consider it from the point of view of a Real American: these guys are wasting time doing something that involves just their own self-gratification, and for this they deservedly get very little pay and long hours.

    Real Americans know that over half of those time wasters are just foreign drones, doing low value lab and teaching work for peanuts, as they deserve. Losers all of them. There is an enormous global glut of PhDs and postdocs, and one can buy them by the dozen for cheap.

    If those PhDs and postdocs were Real Americans they would get an MBA and learn ways to create new risky financial products, new ways of skimming cream off the top, faster ways to sell toxic mortgages to suckers, more astute incentives to regulators to close both eyes before monopolies and accounting tricks.

    Those are the sort of activities that create real wealth for the deserving few according to Real Americans.

    The American Dream is to take money off undeserving suckers and get away with it, something that requires real skill and attitude, unlike the drone-like job of doing research and teaching.

    Selling CDSes with no capital backing, selling mortgages with no documentation, that’s what Real America needs and rewards.

    Not writing papers and lecturing, or manufacturing ipods or writing software. Leave the latter to the worthless masses in China and India,, plenty of suckers there desperate to do it for the very little money it deserves.

    Real Americans have better things to do, and they despise those who waste their own time and parasitically exploit their betters via grants and stipends and contribute a pitiful amount to the economy.

    For Real Americans people like Paulson, Nacchio, Greenberg, Mozilo, Fuld, Cayne were never PhDs or postdocs, or rapidly left that behind, and they are heroes for creating hundreds of millions of wealth each, despite the disincentive of being viciously exploited by the government with tax extortion used to give free cadillacs to the welfare queens, free t-bone steaks to the strapping young bucks, and free grants and stipends to those other looters, the PhD students and postdocs that hang round those centres of the anti-Real American liberal conspiracy that are the universities.

    :-) (the author is not a Real American)

  32. Blissex

    «Selling CDSes with no capital backing, selling mortgages with no
    documentation, that’s what Real America needs and rewards.
    »

    Look at what is happening nowadays: do you think that Real America has been demanding to waste $1 trillion in research and education?

    No way! Real America is ready to invest $1 trillion in wealth producing activities like trading distressed securities, marking assets to bubble, shifting impairments into off balance sheet vehicles, obfuscating accounts, avoiding taxes and regulations.

    Those who will follow the money and contribute to those serious business activities that produce a lot of value for those who deserve it will be rewarded for their contributions to making America a better place for the righteous few.

    For the postdocs and PhDs the markets, who for Real Americans are never wrong, have made it clear that their work is worth little, and should be turned over to the drones in China and India.

    What matters and is rewarded in Real America is not to invent a new drug or battery; it is to own the patent on it, to control the funding to develop it, to plan how to oversell the IPO for it.

  33. Blissex

    «Real America is ready to invest $1 trillion in wealth producing activities like trading distressed securities, marking assets to bubble, shifting impairments into off balance sheet vehicles, obfuscating accounts, avoiding taxes and regulations.»

    In other words Real America want to invest $1 trillion to MAKE MONEY FAST, which is surely not something that PhDs and postdocs contribute to, thus being exploitative parasites.

    I’ll repeat here the definition of a “good American” given by one of the most important Real American philosophers and social commentators:

    http://classwebs.SPEA.Indiana.edu/bakerr/v600/a_new_look_at_environmental_poli.htm
    «If you have a society where almost every middle class person routinely fudges the law, that’s telling us something. We have laws that matter-murder, rape, and we have laws that don’t matter. [ … ] The first thing that every good American says each morning is “What’s the angle?” “How can I get around it?” “What does my lawyer think?” “There must be a loophole!” Then he proceeds to work the angle, and the bureaucracy spends its time chasing that and writing new regs to stop him. America is the most incentive-driven society on the planet.»

  34. vlade

    Blissex
    you’re right that EWYK can’t apply to large organizations. That’s not an argument against EWYK though, it’s an argument that in complex organizations there should be no bonuses at any level, since it’s as hard to figure out how much CEO’s contribution (apart from trying to look pretty at the annual report photo) differs from a mid-level employee.
    Which, in turn, means that if you want large bonuses they are EWYK in a small organization (=lots of risk). Which is, I think, how it should be.

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