Global Breaking News - Monday, December 23, 2024

A Cap on Wall Street Bonuses?
It’s bonus time on Wall Street. Starting on Jan. 1, caps — limiting bonuses to one year’s base salary, or twice that level with shareholder approval — went into effect within the European Union. These curbs on compensation are among the toughest in the world and are designed to prevent banks from taking excessive risks, but they are not without loopholes, of course. Should regulators and lawmakers in the United States place similar caps on bankers’ bonuses?
* curb (on sth) = 제한(억제)하는 것/ loophole = (법률, 계약서 등의 허술한) 구멍/ cap = (액수의) 한도 

 입법자 또는 규제 기관에서 은행가들의 보너스에 상한선을 두어야 하나요?

1. Stop the Bonus Madness
Restricting the bonuses of bankers would be correctly recognizing that taxpayers have the right to control the income of those they subsidize and bail out.

2. Caps Are Not the Answer
The relationship between bonuses and risk-taking is not conclusive, and involving the government in micromanaging bankers' compensation does not solve the too-big-to-fail problem.

3. Actually, the U.S. Has Bonus Restrictions
The weak U.S. rules are still subject to change. Loopholes could be tightened, deferrals could be lengthened and disclosure could be enhanced.

4. A Way to Reduce Balance Sheet Manipulations
Limiting banker bonuses might help to prevent boards from being excessively outwitted by better informed managers who have fine-tuned their own compensation criteria.

5. You Need More Than Bonus Caps
The best way to reduce bankers' pay to something more "reasonable" would be a clear signal by some of the industry's top C.E.O.s that they and their teams are refusing excessive bonuses.

Sample Essay

Caps Are Not the Answer

Ever since the collapse of Lehman Brothers, policymakers have tried to curb bankers’ bonuses, which are said to encourage excessive risk-taking by financial institutions. These efforts are not likely to yield much fruit. At most, they are a distraction from the much more serious problem of implicit government guarantees to the financial sector and ill-conceived aspects of financial regulation in Europe and in the United States.

According to new European Union rules, which came into force on Jan. 1, bonuses paid to bank executives must not exceed their basic annual salaries without the explicit consent of shareholders. And even then, the total amount is capped at twice the annual salary.

That will not do the trick. As Financial Times’ Tim Harford put it, the cap "is the equivalent of trying to limit alcohol consumption by saying your consumption of beers cannot exceed the number of tequila shots you downed at the beginning of the evening.” HSBC is already planning to augment the base pay for roughly 1,000 of its senior employees with stock paid every three months, which will need to be held for another 5 years, effectively increasing the scope for bonuses that can be paid.

Even if we ignore the flaws of this particular rule, existing research on the relationship between bonuses and risk-taking in finance is far from conclusive, with some studies arguing that it is “unlikely that incentive structures could be held responsible for inducing bank executives to focus on short-term results.”

More fundamentally, involving the government in micromanaging executive compensation in the financial sector does not solve the too-big-to-fail problem. Instead of interfering with private contracts between shareholders and bank executives, governments ought to ensure that financial institutions cannot impose the costs of their failures on the wider population.