Unintended consequences of the AIG bonus bill

By Justin Fox | March 23, 2009 | +

From a reader:

1. A ‘scandal’ will surface a few months from now from the headline “TARP recipients giving [50%-150%] raises to replace banned bonuses”.

2. Bank employees in areas where the revenue generated can be directly traced (sales, trading, private banking, money management, maybe investment banking) will now be paid commissions (% of revenue generated) instead of bonuses. Commissions are specifically exempted from the House bonus bill.

3. Non-TARP recipients (primarily European banks) without bonus restrictions will start to poach departments of TARP recipients en masse, particularly those departments where the person or group (not the institution) owns the revenue-generating relationship (i.e., poaching immediately brings in more money than it costs).

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http://www.simonvinkenoog.nl/beeld/Yogi%20-%20Annelies%20Rigter.jpg yogi

Case #3 is interesting, I’d image the brain drain on TARPies to non-TARPies has been happening and will continue to happen regardless of the bonus tax, but possible sped up with a tax. It’s interesting because an increase in the brain drain could cause the bank to collapse (again) which makes it seem like the bonus tax would undercut what this and the previous administration has been trying to prevent. In that sense Congress, I guess, has actually listened to the populist cry of “let ‘em fail”, but the problem with that now is whether or not, the public owns part of these banks.
http://www.simonvinkenoog.nl/beeld/Yogi%20-%20Annelies%20Rigter.jpg yogi

*but the problem with that now is whether or not they like it, the public owns part of these banks.
tc125231

If number 2 occurs, it is not at all clear –except for emotionalism on the part of commentators, that number 3 should occur. My team is paid on profits –not just revenue. So what? Being paid on profits is a good thing. It allows me to make moderately serious money without wasting a nickel’s worth of time sucking up to some imbecilic executive. I close and run the business. My boss manages the executives. Everybody gains, and fewer homicides are committed associated with executive stupidity.