Thursday, September 3, 2009

Bebchuk on bonuses

Bonus Guarantees Can Fuel Risky Moves by Lucian Bebchuk in the WSJ:

"Financial firms seeking to attract and retain talent are reported to be making a substantial use of guaranteed bonuses, and the French Economy Minister recently called for limits on guaranteed bonuses. While many now focus on how using guaranteed bonuses affects the level of pay, it is important to recognize their effect on incentives. Guaranteed bonuses create perverse incentives to take excessive risks, and they consequently could well be worse for incentives than straight salary."

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