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It's not short sighted. In finance it used to be the norm and is largely moving back that way. Using it as a lever for employee performance is a secondary eff
by JackFr 8y ago
It's not short sighted.
In finance it used to be the norm and is largely moving back that way.
Using it as a lever for employee performance is a secondary effect (that can be done just as effectively with salary). Primarily it allows the firm to manage comp costs to be in line with the firm's performance. During a downturn it allows you to cut comp by like 25% without reducing headcount. The possibility of employees leaving en masse is certainly considered but it's not very common.
- jknz 8y agoI should have added that it only applies to some companies. Finance is a special case because if a lot of traders leave at the same time, the ones who stay will have more capital to play with. Consulting/contracting/auditing firms are very different: they are committed to specific projects for specific clients and have already negotiated the fees. So it's real trouble if employees leave all at once--you cannot simply move their projects/clients to the employees who stay (because it creates even more overworked employees who will leave asap after the next bonus). Also these projects may be much shorter than a year, some audit works are done within one-two weeks. If the firm negotiated a 2 weeks project for $XX fees and the employees on that project manage to finish the project for far less resources, the firm knows that they made a huge profit on that project. The firm may give these employees an instant bonus so that the employees are incentivised to reiterate the performance for the next project.