Europe threatens bankers' bonuses

[Barrister]

Why do they go after bonuses for executives instead of after the profits of the banks themselves?  Seems like a token gesture and nothing else.



G.

Profits of the banks do get returned to the larger community though - through dividends, share purchases and the like.  And bank stocks are amongst the most widely held in the world.

Bonuses however do not get distributed to the wider community.

[derspiess]

Switzerland is one of the best places on Earth to live.

Never been there but it's in my top 3 places if I had to leave the US for some reason.

[Barrister]

Switzerland is one of the best places on Earth to live.

Never been there but it's in my top 3 places if I had to leave the US for some reason.

On the plus side it has nice mountains.

On the minus it's super-expensive and not much actually happens there.

[Zanza]

We'll go back to the days of company cars, housing provided, expense accounts, etc.

Under tax law here, those are very similar to actual salary. Why would it be different for laws on remuneration?

[The Larch]

It will be an interesting experiment.  If the Swiss can still attract world-class executives, their policy will have been proven successful.  Or perhaps they can make do with less than world class executives.

Switzerland is one of the best places on Earth to live. I doubt they'll run out of excellent managers anytime soon, no matter if they pay 5 or 10 million per year.

The problem with Switzerland would be that it's one of the dullest and most boring places in the world to live. Maybe bankers are ok with that, though.

[MadImmortalMan]

Dull can be a good thing. Besides, it's just a home base. Switzerland is close to plenty of places with awesome stuff to do.

[crazy canuck]

We'll go back to the days of company cars, housing provided, expense accounts, etc.

Under tax law here, those are very similar to actual salary. Why would it be different for laws on remuneration?

They are all taxable benefits but whether they will be caught by the new regulation is the question.

[alfred russel]

We'll go back to the days of company cars, housing provided, expense accounts, etc.

I'm not sure those days ever left...

But in terms of the bonus caps, I don't see why it is a big deal...the people in question can just get bigger salaries. In the US that would cause tax issues, and it might in other countries too, but even so that is a surmountable problem.

In terms of the Swiss shareholder veto on pay requirement, I also don't see it as a very big deal. There is quite a bit of experience on shareholder votes for executive compensation (generally non binding), and they almost invariably approve of the pay packages. Shareholders aren't analogous to the general public.

[fhdz]

they are banks their entire reason to exist is to make money

Banks exist to protect the deposits of their clients and to *conservatively* loan money. Turning a profit keeps the lights on, so it allows them to engage in their reason-for-existing. Turning a profit by refusing to protect client holdings and loaning money to exceptionally risky ventures is most certainly greed. I can't imagine you've lived through the 2000s and aren't picking that up for some reason.

[Barrister]

they are banks their entire reason to exist is to make money

Banks exist to protect the deposits of their clients and to *conservatively* loan money. Turning a profit keeps the lights on, so it allows them to engage in their reason-for-existing. Turning a profit by refusing to protect client holdings and loaning money to exceptionally risky ventures is most certainly greed. I can't imagine you've lived through the 2000s and aren't picking that up for some reason.

ummm, no.

Banks are for-profit corporations and do in fact exist to turn a profit.

Perhaps you are confusing banks with credit unions / savings & Loans?

[fhdz]

Lol.

[Malthus]

The key is to align incentives to reward steady wealth- creation by banks and other corporations, and not spectacularly risky boom-or-bust endeavours. The difficulty lies in how to do that without stifling growth and innovation.

One theory I have read is that the widespread use of stock options as incentives is counterproductive in this respect, as it encourages excessive short-sighted risk-taking - managers reap the benefits of risk (they exercise their options if the stock goes up) but not the downside.

[Admiral Yi]

Arguably the problem is not risk per se, but rather mis-priced risk and/or highly correlated risk.

[Valmy]

And as that's unlikely to happen, the democratic sovereigns of Europe will eventually shape society in a way they desire through laws like the Swiss one.

Eventually?  Haven't the sovereigns of Europe been shaping society for centuries?  I guess I missed the era of anarchy.

[Barrister]

Arguably the problem is not risk per se, but rather mis-priced risk and/or highly correlated risk.

True enough.  It's not that the banks took inappropriate risks, it's that they didn't properly assess how risky some of their moves were.