Wednesday, March 05, 2008

Code on bankers' pay

As somebody who was amongst the earliest to raise the issue of incentives in banking as a source of instability, I am gratified to note that a code on bankers' pay is under consideration at the Institute of International Finance.

Ideas being floated include bonuses being deferred until the full impact of bankers’ strategy is clear to prevent them benefiting from short-term high-risk bets that subsequently turn sour.

Another variant would see those who lost money for their businesses having to earn it back before they secured new bonuses. However, the concept is likely to prove highly controversial, particularly among investment bankers in London and New York. “It does not sound workable,” said a senior Wall Street executive, who argued that it was highly unlikely Wall Street banks would agree to any kind of uniform compensation rules for fear of giving up a competitive advantage.

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