It would be highly unlikely to find a person who hasn't commented on the topic of fat bonus of wall street employees as the cause of financial meltdown. In spite of all the excess coverage, if there is someone who missed it, here are a few thoughts of my own, mostly repackaged from others much like the repackaged CDOs.
Starting with the simple mathematical explanation. Consider your bonus is 10% of the profit you make, but you don't get penalized for losses. If you can make a profit of $100 across two years, here are two scenarios.
1. You make a profit of $50 each year earning a bonus of $10 for two years.
2. You make a profit of 1000$ in year 1 (bonus=$100) and net a loss of 900 in year 2 (bonus=0). You end up with a net bonus of $100.
So, in short there is no incentive for creating long term wealth. This was one reason so many of investment banks that prided their ability to help companies go public were wary of becoming corporations initially. As partnerships, they were assured of loyalty from the top executives, unlike public company model where a major component of earnings is non-returnable hard cash.
The second, more philosophical explanation is of morality [my favorite topic :)]. Increasingly, the whole world is working towards an optimization of everything. Some of the cliches that I think create a wrong framework for growth are:
So many of these supposedly career building mantras become fundamentally disconnected with your real contribution. I would have been happy only if they were combined with advice about improving the contribution and ways towards it. Isn't the most popular competency an MBA can offer to a recruiter is - I will be whatever you want me to be, if it is immoral, so be it.
Starting with the simple mathematical explanation. Consider your bonus is 10% of the profit you make, but you don't get penalized for losses. If you can make a profit of $100 across two years, here are two scenarios.
1. You make a profit of $50 each year earning a bonus of $10 for two years.
2. You make a profit of 1000$ in year 1 (bonus=$100) and net a loss of 900 in year 2 (bonus=0). You end up with a net bonus of $100.
So, in short there is no incentive for creating long term wealth. This was one reason so many of investment banks that prided their ability to help companies go public were wary of becoming corporations initially. As partnerships, they were assured of loyalty from the top executives, unlike public company model where a major component of earnings is non-returnable hard cash.
The second, more philosophical explanation is of morality [my favorite topic :)]. Increasingly, the whole world is working towards an optimization of everything. Some of the cliches that I think create a wrong framework for growth are:
- Don't fight your perception; perception is reality - then why not work on just that. Just put up an excellent show.
- People remember your peaks/troughs - much like the wisden greatest cricketer of all time rating, consistency be damned.
- Your success depends a lot more on who you know than what you do - there you go.
So many of these supposedly career building mantras become fundamentally disconnected with your real contribution. I would have been happy only if they were combined with advice about improving the contribution and ways towards it. Isn't the most popular competency an MBA can offer to a recruiter is - I will be whatever you want me to be, if it is immoral, so be it.
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