Compensation
Researchers have not been able to find a link between banker compensation and short-term performance metrics. In their words, their finding “refutes the suggestion that incentive structures in banks could be blamed for the crisis”. As we were reading the study’s description, we were alarmed that the professor equated “short-term performance” with the short-term movements in share prices, which is not usually how compensation is set in banks. Then we found a post by the Epicurean Dealmaker that destroys the study precisely on these arguments.
Nothing new, but always nice to emphasize. Booz & Co.’s Strategy & Business has a summary of a recent paper on CEO compensation. It’s public knowledge that it has skyrocketed in the last 20 years or so, but this paper searches for a driver – and finds it in “compensation benchmarking”. You could also call it “The grass is always greener” effect.
Spinoff & Reorg Profiles’ latest report has a very interesting section on Insider Buying, and we asked for and got Bill Mitchell’s permission to post an excerpt here. Using Sharps Compliance (ticker SMED) as an example, this section of the report discusses when “incentive stock option exercises may act as an insider signal”. Item #5 in his summary (the last paragraph) is vital, as insiders are only human and can get carried away with frothy valuations just like the rest of the market. No matter how powerful one or even a combination of “signals” may seem, there must be “fundamental value” / margin of safety.
The debate on the so-called “ideology of talent” isn’t as clear-cut as Financial Times guest columnist David Bolchover argued. There’s merit in pointing out how a blind “cult” of talent – or at least perceived talent – has led to inadequate incentive structures. However, blaming the financial crisis on this talent chase seems way over [...]
