4 ms·

Are you referring to investment banking/trading/PE or what? This is definitely not true in IB or trading. Your bonus is a direct function of what you make. This

Are you referring to investment banking/trading/PE or what? This is definitely not true in IB or trading. Your bonus is a direct function of what you make. This is particularly true for even more senior partners in IB/trading firms. The rainmakers make significantly more money than 'operating' or 'non-money-making' partners.

tomp 12y ago
Right... but if you "punish" a very successful trader by giving him/her a lower-than-agreed-to bonus (for traders, the bonus should be a percentage of their realized PnL) because of actions of some higher-level executives, the only effect that will have is that the trader will go to a different company that will pay him what he is worth.
randomsearch 12y ago
> Your bonus is a direct function of what you make Isn't the point of the article that this is demonstrably untrue?
- czinck 12y ago
  You're assuming that their performance is directly proportional to the performance of the market as a whole. My understanding is it's tied to how they perform against an index like the S&P 500. The S&P 500 lost something like 50% over 2008, so even if a trader lost 25%, they outperformed the market by a lot and deserve (according to their contract) the bonus.
- yummyfajitas 12y ago
  A bank might make a $20M loss on trader A's strategy but a $10M gain on trader B's strategy, for a net loss of $10M. Then trader B gets a bonus and the company that lost money is giving out bonuses.
- lucozade 12y ago
  Not quite. The article is pointing out that the overall level of bonus is not well correlated with the revenue (or profit) of the companies as a whole. The poster is pointing out that that's largely because an individual's bonus, particularly in areas like IB (where most of the bonus pool ends up), is much more of a function of the revenue the individual brings in. Part of the reason for the discrepancy at the time of the crash is that, until the liquidity crisis gummed everything up, most of the catastrophic losses where in a relatively niche area. A lot of the other parts of the banks did continue to make money. Then when the liquidity crisis hit, the view was, generally, that significant parts of the businesses were still fundamentally sound so there was no point losing good people as they'd be needed to build things back up again. I happen to think that all this is sensible up to, but not including, the bit about losing good people. This was fundamentally self serving and tended to define "good" as those who were successful is a overly risky environment.
  - ScottBurson 12y ago
    It would make some sense, perhaps, if employees with no responsibility for the catastrophic losses still received some bonuses -- though the company's ability to pay the full bonus ought to be factored in. What doesn't make sense is that anyone involved with the losses or in the management chain of anyone who was should still get any bonus at all. That, obviously, includes the CEO. If the CEOs of these companies still received large bonuses -- and my impression is that they did -- that is fucked up.
    - lucozade 12y ago
      I believe that most, if not all, of the CEOs of the worst affected companies lost their jobs. Having said that, there would have been a fair few golden handshakes so your point is valid. To my mind the worst of those was Stan O'Neill. He got kicked out when it was just a disaster but not yet a catastrophe (when the mortgage losses were known but before the liquidity crunch) so he walked away with something heinous like $160mm.

tomp 12y ago

Right... but if you "punish" a very successful trader by giving him/her a lower-than-agreed-to bonus (for traders, the bonus should be a percentage of their realized PnL) because of actions of some higher-level executives, the only effect that will have is that the trader will go to a different company that will pay him what he is worth.

randomsearch 12y ago

> Your bonus is a direct function of what you make Isn't the point of the article that this is demonstrably untrue?

czinck 12y ago
You're assuming that their performance is directly proportional to the performance of the market as a whole. My understanding is it's tied to how they perform against an index like the S&P 500. The S&P 500 lost something like 50% over 2008, so even if a trader lost 25%, they outperformed the market by a lot and deserve (according to their contract) the bonus.
yummyfajitas 12y ago
A bank might make a $20M loss on trader A's strategy but a $10M gain on trader B's strategy, for a net loss of $10M. Then trader B gets a bonus and the company that lost money is giving out bonuses.
lucozade 12y ago
Not quite. The article is pointing out that the overall level of bonus is not well correlated with the revenue (or profit) of the companies as a whole. The poster is pointing out that that's largely because an individual's bonus, particularly in areas like IB (where most of the bonus pool ends up), is much more of a function of the revenue the individual brings in. Part of the reason for the discrepancy at the time of the crash is that, until the liquidity crisis gummed everything up, most of the catastrophic losses where in a relatively niche area. A lot of the other parts of the banks did continue to make money. Then when the liquidity crisis hit, the view was, generally, that significant parts of the businesses were still fundamentally sound so there was no point losing good people as they'd be needed to build things back up again. I happen to think that all this is sensible up to, but not including, the bit about losing good people. This was fundamentally self serving and tended to define "good" as those who were successful is a overly risky environment.
- ScottBurson 12y ago
  It would make some sense, perhaps, if employees with no responsibility for the catastrophic losses still received some bonuses -- though the company's ability to pay the full bonus ought to be factored in. What doesn't make sense is that anyone involved with the losses or in the management chain of anyone who was should still get any bonus at all. That, obviously, includes the CEO. If the CEOs of these companies still received large bonuses -- and my impression is that they did -- that is fucked up.
  - lucozade 12y ago
    I believe that most, if not all, of the CEOs of the worst affected companies lost their jobs. Having said that, there would have been a fair few golden handshakes so your point is valid. To my mind the worst of those was Stan O'Neill. He got kicked out when it was just a disaster but not yet a catastrophe (when the mortgage losses were known but before the liquidity crunch) so he walked away with something heinous like $160mm.