It is time to treat Wall Street like Main Street

February 25, 2010 at 11:24 am Leave a comment

Am article Warren and Charlie will be proud of.

Time to get back to basics and reduce this outsized pay.

there are at least four reasons why bonuses and pay-for-performance are a risky business. First, it can be hard to see whether employees make the right decisions; superiors do not hold the same information, and the results of decisions play out years later. Second, performance pay will attract exactly those who are willing to take on more risk. People interested in high but steady income will choose other careers. Third, to get their pay, employees may manipulate the system, against the interests of those who set up the incentives: like teachers who are threatened with losing their jobs and teach to the test. Finally, and most perniciously, performance pay can crowd out intrinsic rewards, as when children, having received gold stars for drawing pictures, later draw less than before in their own time. Why draw without getting paid?


Entry filed under: Investing.

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