Big Wall Street Bonuses

Here's a bit from an article by Dan Ariely, a behavioural economist, about the efficacy of giving the Wall Street Bankers -- you know, the ones who bankrupted their own banks and trashed the entire world's economy -- the big multi-million, tens of million, dollar bonuses as "reward" for their good work in 2009:

When Kenneth Feinberg, the White House's man watching over the US Troubled Asset Relief Program, ordered bailed-out firms to cut exec pay and restructure (that is, downgrade) bonuses, many Americans greeted the news with unqualified approval. Joy, even. This new policy fits well with our human instincts for justice and revenge. Given how they've performed, bankers' pay just seems so patently unfair.

Bankers, of course, argue that fairness has nothing to do with it. And they're right. Fair pay based on contributions is not the point, and it's practically socialistic. Pay should be structured to recruit certain kinds of talent -- yes, how you pay affects who applies -- and it should help align individual goals with company goals.

More than anything, argue the bankers, pay should motivate: huge bonus cheques are to ensure superior performance from superior talent.

On this point, the bankers are wrong. We've recently gathered evidence suggesting that dangling exorbitant sums of money in front of workers doesn't improve performance. If anything, it negatively affects it.

Read the article to get the details about the experiments.

The surprise is that big pay doesn't motivate. In fact too much pay and people perform worse. So all those "serious justifications" explaining that if you don't pay outrageously huge bonuses to bankers, well, they just can't do their business is... bunk! It is just rationalization by the greedy for their greed.

What bugs me about their greed is that it undermines the whole society. We are in this together and when one group holds everybody else up for hostage while they feather their nest and literally impoverish the rest of us, you can't have a happy community. This kind of disparity -- worse, this ludicrous payment for poor performance -- creates jealousy and discord and opens the floodgate to greed, greed unlimited because each of us is certain that we have a special talent that needs a very special reward, and the bigger the better!