Monday, December 03, 2007

Cash/Stock equilibrium for Wall Street bonuses

The FT says (via DealJournal):

Paying up to 70 per cent of compensation packages in shares changes the dynamic of the annual bonus round. Employees may dislike the lack of hard cash while shareholders may be unimpressed at the prospect of dilution.

But the problem for investment banking bosses is how to sell such a difficult message to both audiences.

The human resources line is to justify it on the basis that it aligns the interests of employees with the company, which should be to the long-term benefit of shareholders too.

The reality is more complex. A banker in possession of bombed-out shares is a cheaper catch for a rival bank that can buy out options at relatively little cost. So the share ownership does not necessarily lead to staff stability.

Beyond this, the value of shares is a somewhat blunt instrument as a motivational tool. Share price fluctuations are well outside the control of individuals or teams and bankers know this.

No comments:

Post a Comment