Rewarding Investment Bankers with Mortgage Backed Securities & Junk Bonds: Justice?

Senior investment bankers with Credit Suisse Group typically receive about half of their compensation in stock, the rest in cash.  This year, according to the Wall Street Journal, the bank is planning to pay a substantial portion of their 2008 compensation with an illiquid group of mortgage backed securities, junk bonds and corporate loans.

According to the article, many of the senior bankers are upset, believing they are being unfairly punished for risky assets bought by colleagues in other parts of the firm.

Credit Suisse explains the move as necessary to help the bank reduce its pile of risky assets, demonstrate to shareholders that the bank is taking the credit crisis seriously, and to provide at least some compensation in a year when the bank could post losses of $4 billion or more.

I can appreciate the position of individual bankers who believe they are taking a hit for poor business decisions they may not have been involved in making.  It is likewise unfair for the many thousands of workers nowhere near Wall Street who are watching their pay - and in many cases their jobs - being cut.  Not really their fault either. 

All in all it strikes me as a pretty smart move on the part of Credit Suisse, and an interesting way to send a message via the structuring of a reward package. 

What do you think?

Comments

[E James (Jim) Brennan]

Putting their money where their mouth is, cushioning the impact of bad decisions by their peers, sharing the pain of their end users, and making members of the banking team suffer from the sins of the banking team.... I like it. Creates real team spirit via group ownership of the problem, which inspires group action for the problem solutions. Everyone gets the monkey. No sense giving rewards without maximizing the communications message, and this does it pretty well.

[Ann Bares]

Jim:

Well said - excellent summary. I like it, too!

[E. James (Jim) Brennan]

Ironic, too, that a nation built on secretive bankers doing business in any one of three official national languages can communicate a complex message so clearly and concisely merely through the mechanism of the reward structure alone without needing to rely on feeble words.

[Chris Young]

Thanks for sharing this Ann, I can't wait to see how this pans out for Credit Suisse!

I've included your post as a bonus pick to my weekly Rainmaker 'Fab Five' blog picks of the week which can be found here: http://www.maximizepossibility.com/employee_retention/2008/12/the-rainmaker-3.html

Be well Ann!

[Ann Bares]

Chris:

Thanks for including me in your Fab Five - always great to be recognized. Readers, be sure and click through to check out Chris's picks - some great reflections on talent management challenges in these difficult times.

[RMSJr.SPHR]

Appropriate strategy. All actions and inactions have consequences.