atans1

Incentive schemes: Three insights

In Uncategorized on 30/09/2016 at 5:10 am

The basic principle for any incentive scheme is this: can you measure everything that matters? If you can’t, then high-powered financial incentives will simply produce short-sightedness, narrow-mindedness or outright fraud. If a job is complex, multifaceted and involves subtle trade-offs, the best approach is to hire good people, pay them the going rate and tell them to do the job to the best of their ability.

Tim Harford UNDERCOVER ECONOMIST writing in FT

Months ago I saw this gem of a comment in FT

“For a bonus system to work, the measurable outcomes should not be known by the employee so that, theoretically anyway, they would be expected to apply maximum effort and standards throughout their work. The basis being, it is difficult to game a system if you don’t know what to game. Of course the need for transparency renders that a non-starter!”
By Trecar on “Burger flippers deserve bonuses, bankers do not”

Finally, Compliance v Front-line, rows that incentives are the cause of, from NYT Dealbook sometime back

NUNS WITH GUNS: THE STRUGGLES BETWEEN REGULATORS AND BANKERS Lenders have bolstered their forces with people to interpret and enforce a wave of new regulations, bringing striking change to banks’ internal cultures, The Wall Street Journal reports. The 2010 Dodd-Frank law, intended to prevent another financial crisis, is one of the most complex pieces of legislation ever. It is the length of about 15 copies of “War and Peace” and covers matters like how much capital banks must set aside or how they can advertise.

Banks have hired tens of thousands of new employees and federal agencies have dispatched thousands of their own minders to watch over them.

The new regulatory environment has changed the way banks work and forced them to push back their offerings. It has also been costly. Spending on regulatory compliance by the six largest banks in the United States rose to $70.2 billion in 2013, from $34.7 billion in 2007.

The change can be maddening, with regulators, internal compliance executives and employees all operating like rival tribes, people who worked on the issues told The Journal.

When bank compliance executives at Barclays shared images of how each group thinks of the others at a town hall, bankers were represented by cowboys on horses with guns. Compliance officials were depicted as nuns carrying guns. Barclays declined to comment.

Compliance employees told The Journal that they felt like hallway monitors, with people dropping what they were doing when they entered the room.One former Consumer Financial Protection Bureau deputy said he gave examiners pep talks, reminding them to “never let it be personal” and not to go in “with a chip on your shoulders.”

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: