Bankers' bonuses: limit or laissez-faire?
Today, we are facing one of the biggest financial crises the modern world has known. To summarize facts, the greediness of a few ?bankers? and the globalization of the economy have lead, and are still leading to many bankruptcies and redundancies. Obviously, looking for the guilty party when things go wrong is part of human nature; the financial elite with their huge bonuses are the ideal culprits.
[...] Nicolas Sarkozy followed him a few days later with the same bill. But as far as United States are concerned, the senators Jim Webb and Barbara Boxer introduced, in the beginning of february, a bill would tax 50% of the part of bonuses above Hence we can guess where european best fund managers will work in the coming years Then what would be the solutions, and their possible pitfalls ? First of all, according to me, the most important improvements should concern the risk management. [...]
[...] But on the other hand I think that CEOs bonuses are too huge, given the real impact of their decisions on the profits of financial institutions; and especially as far as golden parachutes are concerned for business in deficit Even so, are bonuses bad or useless? And what would be the consequences of their abolition or restriction ? Contrary to what public opinion could think, different studies carried in United States and Europe showed that surprisingly bonuses have desirable effects on effort, risk-taking, and fundamental orientation on both sides of the Atlantic. These studies established that bonuses are the dominant factor in eliciting working effort. [...]
[...] Secondly, as we saw that bonuses are essential, a solution would be not to abolish this system but to modify it. In fact we can imagine that traders or fund managers should invest a part of their own assets in the funds they manage, in order to make them much more motivated, “invested” in their search of the best investment and especially aware of risk. Besides, the staggering of the payment of bonuses on at least three years would urge traders to be more careful to favour more long term investments; and not only choose short term investments which will make them earn more with their year-end bonuses. [...]