Performance and Reward

I was encouraged by an excellent article by philip Stephens in the FT 21/12/09. This can be seen at http://www.ft.com/cms/s/0/222e7a5e-ee6c-11de-944c-00144feab49a.html (subscription may be required).
Philip argues powerfully that politicans need to be involved in banks. I posted the following comment (on 23/12/09):

I did appreciate this article which was brave enough to confront the key issues. I was particularly glad to see talk of a long term cap on remuneration. (What does long-term mean in this context?) Remuneration caps are all-important if the incentive problems are to be solved. (See my letter in FT 12/12/09 and my blog www.performanceandreward.blogspot.com.)
The incentive problem is illustrated by "Young NY Banker" note to self below. All the concerns mentioned concern his/her own personal situation and prospects. None of it concerns the public good or the way in which we all need to help one another if we are to get along sensibly as a society. The incentive regime has utterly eliminated such "altruistic" concerns from present day banking, but now that the banks are supported by public money these questions must be put centre stage once again. Making sure that finance properly benefits the whole of society has to be the top priority. Politicians are the people to whom we entrust such decisions and they have to be centre stage.
We used to turn a blind eye to selfish practices in banking because banks created wealth in which we all shared in, at least to some extent. The crisis however has revealed that much of the wealth created was less real than it seemed. Current profits in banking are very heavily dependent on artificially cheap money, so it is still far from clear that banks are creating real wealth. Politicians have got to get involved big time.

Labels: common incentives, pay cap, Politicans, public good