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>Anyway what is the justification for a cap on bonuses? That the bonuses are paid for with tax payers' money? The banks fail, then get bailed out... and from

>Anyway what is the justification for a cap on bonuses? That the bonuses are paid for with tax payers' money? The banks fail, then get bailed out... and from the bailout money they continue to pay themselves bonuses when they actually shouldn't see a dime. Banks had to be bailed out a bit too much recently to still be allowed such high bonuses.

lmm 10y ago
What about banks that weren't bailed out, why should they be punished for the failure of their competitors? What about banks that have repaid their bailouts with interest? But more than that, why this focus on bonuses rather than total compensation? Surely what matters is how much someone is paid, not the details of how that payment is structured.
- tyfon 10y ago
  Bonus is usually paid out as a reward for short term goals, and that creates incentives to take higher risk in the short term. Total compensation does not have this incentive. I am a banker (although we are a startup bank), and for us the bonus is structured so that it is not paid in full immediately. Quite a bit is held back in case someone does something unhealthy to the company to reach their short term bonus goals. This is not common practice though.
  - lmm 10y ago
    > Bonus is usually paid out as a reward for short term goals, and that creates incentives to take higher risk in the short term. Total compensation does not have this incentive. If specific pay structures create bad behaviour then perhaps we should ban them, sure. But banning bonuses in general seems far too broad. How many people complaining about bonuses on this site have pay that includes stock or options - aren't those much the same thing?
- eru 10y ago
  Credit Suisse once paid the bonuses in `toxic assets'. A brilliant move: the PR was excellent, toxic assets moved off their balance sheets, and the bankers actually made a better bonus than they would have gotten in cash. (The toxic assets turned out to pay more when held to maturity than many models had forecast.)

lmm 10y ago

What about banks that weren't bailed out, why should they be punished for the failure of their competitors? What about banks that have repaid their bailouts with interest? But more than that, why this focus on bonuses rather than total compensation? Surely what matters is how much someone is paid, not the details of how that payment is structured.

tyfon 10y ago
Bonus is usually paid out as a reward for short term goals, and that creates incentives to take higher risk in the short term. Total compensation does not have this incentive. I am a banker (although we are a startup bank), and for us the bonus is structured so that it is not paid in full immediately. Quite a bit is held back in case someone does something unhealthy to the company to reach their short term bonus goals. This is not common practice though.
- lmm 10y ago
  > Bonus is usually paid out as a reward for short term goals, and that creates incentives to take higher risk in the short term. Total compensation does not have this incentive. If specific pay structures create bad behaviour then perhaps we should ban them, sure. But banning bonuses in general seems far too broad. How many people complaining about bonuses on this site have pay that includes stock or options - aren't those much the same thing?
eru 10y ago
Credit Suisse once paid the bonuses in `toxic assets'. A brilliant move: the PR was excellent, toxic assets moved off their balance sheets, and the bankers actually made a better bonus than they would have gotten in cash. (The toxic assets turned out to pay more when held to maturity than many models had forecast.)