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Bankers Bonuses

Discussion in 'Serious' started by AoE, 7 Feb 2012.

  1. DXR_13KE

    DXR_13KE BananaModder

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    I wish the health system worked like that around here... at least for the doctors...

    edit: Nurses are screwed right and left around here.
     
  2. Carrie

    Carrie Multimodder

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    Are you lot still banging on about this? :rolleyes:

    All of this is a matter of market forces, perceived value of contribution and affordability.

    Nexxo, I'm sure you're worth more than you're paid and are conscientious enough to put in more hours that you are required to but the fact of the matter is that you're employed essentially by the people at a rate that's been determined as affordable to employ you and all the others like you (are there others like you? :eeek:) If you worked in a private sector capacity where you could set your own rates you'd no doubt charge more, and for every hour worked because there are people out there with money who would perceive your contribution as worth the money paid. You, for whatever reason, have chosen not to take that path. All credit to you though for that decision.

    Functions paid for out of the public purse are likewise attributed lower remuneration based on affordability. They are not truly revenue generating; they use up financial resources not directly contribute to their increase.

    In principle the private sector roles that are based on value of financial contribution are those that obviously receive the greatest financial reward. In a society where ROA is essentially the driving force they will always reward those who contribute most to that return. Those who have a proven track record of that contribution will be perceived to have greater value and market forces dictate that they are offered greater rewards in anticipation of that return. That is what they are paid for, that is what is expected of them and make no mistake if they **** up they pay the price eventually.

    As has already been said by many people on here, bankers are not one job, not one function, are not all responsible and not all accountable for the losses made. Bank workers are not just made up of revenue generators and risk takers. They include cleaners, security, IT, teller, admin, personnel, accounts, processor, developer, receptionist, switchboard staff etc. These are not the people who have a greater perceived value of contribution because they don't generate revenue and do not carry an inherent risk and so don't receive the rewards so objected to.

    Then there are the "normal" revenue generators: loan officers, spot traders, futures traders, corporate financiers, etc. Even these roles are not the high risk roles that create huge exposure to loss, provided adequate controls are in place to prevent "Leeson" events. Hell, an M&A specialist can work for a year on a deal for it to fall through on something disclosed in due diligence, a client's change of mind on a whim or a sudden change in the market, for which they get nothing except possibly the sack!

    It's the high risk investment banking areas and trading in poorly understood instruments that carried some of the greatest risks and offered the greatest returns. But market forces have dictated that their perceived value has been sufficient to warrant their rewards. You may choose not to agree but the employer or client who receives £15m in profit from someone receiving £5m in bonus on the profit they have made for them doesconsider it good enough return to warrant that bonus. And if they don't make them profits they lose their jobs.

    But the advantage that senior levels such as CEOs have had for many years, good market years when good ROA has been easier, is that being in demand to the degree they have, they have been able to, all intents and purposes, to dictate their own contracts by way of golden handshakes, parachutes and other benefits in part because people forgot the potential level of risks, or considered the risks negligible, and only thought of the rewards.

    Now leave out the jealously and the whining, as most of you have said already, if you were offered a contract with those kinds of returns you wouldn't turn it down.
     
  3. lp1988

    lp1988 Minimodder

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    My initial response was a bit rushed and a bit too aggressive so sorry for that, and the last sentence was not coined on you, but more of a general statement.

    Do I understand it, well yes. at least I understand the market this happens within and some of the forces a play. I do not have the internal information or the insight of my professors but at least I have a better than average chance of making sense of what happened.

    And as I am not sure of what "talking on an empty head" exactly means, I will ignore what I think it means.

    No you didn't, you asked for a definition of ''the mismanagement and really shady deals that caused the crisis'' and I attempted to answer this, or did I misunderstand that post?


    I think one of the major problem here is exactly what risks you are talking about ? loosing your job is not a high risk what so ever, as anyone of this position will have a higher education and as such have a relatively easy time getting a new job. The risk is far greater for the factory worker whom will have a much harder time getting a job due to his lack of university degree.

    In these companies there are no risk of getting sued and making your degree worthless if you loose a deal, as there is for a doctor. And with the bailout there is really no risk for the company as they are "too big to fail." Both a doctor and the major banks are dealing with lives, with banks it is just a bit less direct.

    But please tell me what these "risks" are, as I really would like to know.
     
  4. marksovereign

    marksovereign What's a Dremel?

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    There is a risk at Director level of a company of being held culpable for your actions and subject to criminal prosecution, you can also be disqualified from being a Company Director.
    So yes there are risks both crimminally and reputationally
     
  5. Jampotp

    Jampotp What's a Dremel?

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    Criminal risks? If a director takes a risk that could possibly result in criminal prosecution, surely he shouldn't get a bonus as a reward, whether the risk pays off or not?

    I realise that lots of people take personal risks, not just investment bankers, and get payed/rewarded for it. In fact, most people would want soldiers who took a risk with their own lives to be rewarded.

    However, criminal and reputational risk in this context is somewhat different. If a risk is taken, and it doesn't pay off, the director may suffer through criminal prosecution or rep loss. But criminal prosecution isn't just a personal consequence. Usually, a criminal prosecution comes as a result of other's suffering. The consequence for the director may be fines or prison. But there is also a consequence for the public. Surely you can't reward someone for taking a risk with someone else's money/livelihood?

    The point I'm trying to make is, investment bankers shouldn't make massive risks which could result in criminal prosecution, let alone get rewarded for it.

    I've just read through most of this thread, so eyes are a little blurry now... apologies if I've missed the context of your post.
     
  6. Byron C

    Byron C Official Necromancer

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    From what I understand, you could only be liable for criminal prosecution and/or massive fines if you have done something wrong; usually not complying with industry protocols/regulations, such as Sarbanes-Oxley or the DPA (not actually too sure whether SOX carries criminal penalties though, as it's US legislation). It is true that directors are held personally accountable for those in their employ, and could suffer significant personal impact (imprisonment, fines, barred from becoming a director at other companies, etc), but as mentioned you won't necessarily be exposed to this risk unless you are doing things improperly or illegally.

    The kind of risk that is usually meant when discussing this sort of topic is financial risk: i.e., the risk of losing an awful lot of company/client money, which could lead to bankruptcy/insolvency. There is a reputational risk involved with this, as what firm would want to take on an investment banker who has no proven track record or a string of failures to their name? Plus it's probably not out of the question that a hedge fund or private investment firm could be sued by a client for mis-management or a perceived breach of contract.

    This may be somewhat of a tangent, but I finished Market Forces by Richard Morgan a little while ago; a really good piece of speculative fiction about the future of investment banking... Well worth a read.
     
  7. Nexxo

    Nexxo * Prefab Sprout – The King of Rock 'n' Roll

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    Not that speculative. I'd say that future is already here.
     
  8. Byron C

    Byron C Official Necromancer

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    Well, we're certainly getting to the point where petrol is rapidly becoming unaffordable... I only learned recently that the price paid for fuel is around 60% tax and I still can't get over that. At this rate it really won't be that long before we hit £2 per litre.

    Although I think it will still be a long time before we're likely to see duels to the death on the road over investment deals, or executives carrying & using firearms with impunity!
     
  9. lp1988

    lp1988 Minimodder

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    Yes there is a risk if you are in the leading role, however NOT if you aren't doing anything illegal or straight up stupid. However this is not special for only these fields, all directors in all companies carries these risks, and again even if you mess up and aren't allowed to be a director any longer you still have far better opportunity to get a new job than the factory worker. What I am asking for is what are the special risks that warrant these hight pay checks, as from my side I only see that these people carry far less personal risk than many others, but still cash in the higher pay check.

    Despite companies like Goldman Sachs being the direct reason for the financial crisis they never had to pay for it, they actually got rewarded. And from an outside perspective it really doesn't look like they learned anything besides that it pays to screw people over.
     
  10. Byron C

    Byron C Official Necromancer

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  11. lp1988

    lp1988 Minimodder

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    While that is true in theory, with the financial crisis and the bailout it has been proven wrong. as far as I can see Goldman Sachs is doing pretty good after the failure of the crisis, partly due to the $12.9 billion in bailout. :jawdrop:

    And losing money for a client is no worse than making an awful products so again I fail to see the proclaimed extremely high risks.
     
  12. Byron C

    Byron C Official Necromancer

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    The problem with the current financial crisis is that so much of the population's money was at risk. If the major banks had been allowed to fail, millions of people would have suffered some pretty serious consequences. Without the bailouts, high-street banks would have been unable to repay customer deposits/savings - we'd all really be up sh** creek if that were the case, and this is why Northern Rock was nationalised over here.

    Private investment firms & hedge funds go bankrupt all the time, but they rarely make the mainstream news because the assets involved aren't based on the bank account balances of the general public. You can bet that the people involved in those cases don't get bailed out and certainly pay the price for failure.
     
    Last edited: 10 Apr 2012
  13. lp1988

    lp1988 Minimodder

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    I am not doubting that the bailout was necessary in order to keep the economy somewhat afloat, I am just saying that as long as you are "too big to fail" there is really no such thing as a risky investment as you essentially have the US government as backup if everything goes down the drain. On top of that the way many of the companies has conducted themselves after the bailout and even during is bordering the ridiculous. That the bailout could have been made differently is a completely different talk, but let us just say that just plainly giving the money out was not the best solution.
     
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