Linky Love for the 11th January

  • Ben Goldacre on whether public sector workers get paid more than private.
  • Jourdemayne writes on Uganda’s child sacrifices.
  • The Bonus Tax might not fall where its meant to.
  • Chris Dillow enlightens us on the similarities between Tiget Woods and Iris Robinson.
  • Paul discusses the hypocrisy of Tom Harris.
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8 thoughts on “Linky Love for the 11th January

  1. On the bonus tax, it’s interesting how the comment’s on MR’s post see this as an ideal tax.

    But we need more banking equity. Why are shareholders acting like this? The FT is alarmed. So they should be. This is a serious flaw in the capitalist model, I think:

    http://www.ft.com/cms/s/0/9871cd96-fc91-11de-bc51-00144feab49a.html

    In a way, we want monopolistic cartel style behaviour from the banks: a massive secret agreement not to pay out to employees, preventing them from threatening to leave. But they won’t. Why? Because the decision makers are the employees, not the shareholders.

    1. It seems like a total abdication of their responsibility.

      We have seen reckless shortermism to inflate shareholder value. I think Robert Wade has written on the subject of the failings of shareholder capitalism. When you are worried about growing the shareprice over the next 6 months, not the business over the next 6 years it leads to perverse incentives.

      Now, a coordinated effort to mitigate this shortermism is undermined by the very people it may help.

      As someone who has never been a shareholder, and already held a dim view of them, this does not impress me.

      It seems that although the shareholders theoretically have the power, the “bankers” are able quite effectively to exert power over them which Arthur Scargill would have been jealous of.

  2. I agree with many of your criticisms here, but I think there is a contradiction.

    Shareholders have no power, that is the problem. Giving away their equity to pay employees is not in their interests. This is not about ‘growing the shareprice over the next 6 months’. It does not help the shareholders, who will have to authorise new issuances to keep the capital pot high enough, all being equal.

    They don’t have power – the employees have.

    I am not sure how you can have a dim view of 30m people . . .

    1. Sorry, refering to the shortermism and growing the short term share price was a reference to activity before the bust. If your pay your is dependent on how well the shareprice looks a few months or so down the line your behaviour may not lend itself to long term investment.

      It does seem contadictory that bankers are willing to forece through bonus payments in a way which makes the shares their wages are partially calculated upon less valuable down the road. Hmmm…. I guess they must expect the payoff to be worth it personally.

      As to having a dim view of 30 million people, I refer you to this. But in all seriousness, it appears that shareholders haven’t asserted themselves where I think they should.

  3. But I don’t think their wages ARE calculated basis the shares, to any great degree. Otherwise, payments would be much lower.

    At my old company (www.iggroup.com) we took a very different approach – much more enlightened. Share-linked dominated pure commission, and worked far better, for the top staff.

    I loved that Speak Your Branes post.

    1. Hmmm…

      Power seems to be key here. But I’m just struggling to see why the shareholders are so keen to lose money to keep “good” bankers.

      QE will continue for at least a little while, keeping asset prices inflated. There’s still a lot of slack to be taken up in the economy so it doesn’t seem like they need the best bankers at the mo. A drunk monkey could make money at the moment.

      Worst case scenario of them not inflating their bonus pot is the loss of a few bankers who they can tempt back at a later date once their position in the market has improved – which, by not paying over the odds, will be sooner than otherwise.

      Perhaps…

  4. Shareholders are not keen to lose money! Any more than humanity is ‘keen’ to cook itself in carbon. It is a coordination problem, of the very same kind.

    Taking action in the principal agent game costs effort. If every shareholder took the effort to come down on their agents, something might happen. But there is an incentive to free ride.

    The other problem is prisoner’s dilemma. Even if there was a mythical shareholder with a single brain in charge of Bank A, and another in charge of Bank B, there would be an incentive for shareholder A to welsh on a deal to not overpay bankers who otherwise threatened to go to the other bank, taking clients etc with them. It is clear what the nash equilibrium would be – both welshing.

    The trouble is that while a drunk monkey could make money right now, there are still gains to be made from poaching at a certain price.

    So I’m afraid you have not identified a shareholder-profitable way of making more money – in my view. If only it were so simple . . .

    1. If only people would do exactly what I wanted. Dammit.

      I see where you’re coming from, it certainly makes sense. You’d think with the Govt with so many fingers in so many bank pies it could help organise something, but i understand thats very unlikely.

      I guess we need a larger change in corporate governance then (when all else fails – revolution!), a move to a stakeholder model.

      Well if its a coordination problem like global warming we just need a global banker tax at $80 a kilo of banker!

      Hmm, not such a bad idea looking at Ezra Klein today.

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