For a short time, banks had stopped offering guaranteed bonuses to lure in big names on Wall Street. But now those bonuses are back, with firms offering iron-clad guarantees of multimillion dollar payouts regardless of how the firm or the employee performs.
And this is likely to put them at odds with the Obama adminsitration’s pay czar. This week seven firms that received bailouts will have to submit pay plans to Kenneth Feinberg, who will review the compensation deals for the top 75 earners at each firm. Many expect that Feinberg will nix the more generous guarantees and may even cut into earned bonsuses that seem excessive.
Of course, all firms want to pay for performance. Or, at least, they don’t want to overpay for performance. Unfortunately, they are often faced with the choice of availing themselves to the upside of a top recruit by promising a guaranteed bonus–which also exposes them to the downsize risk of underperformance–or foregoing the upside by refusing to meet a market price that includes guarantees.
A bar on guaranteed bonsues at some firms but not others will create two-classes of banks–those that can attract top performers and those that cannot. This isn’t necessarily a catastrophe–perhaps we want those heavily bailed out firms to suffer the slow the death of the dearth of talent–but it should certainly be openly and fully considered.
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