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The Return Of Stock Based Compensation On Wall Street

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by Felix Salmon
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Nov 13 2007 12:00am EDT

The Return of Stock-Based Compensation on Wall Street

Everything old is new again, as Yves Smith points out with respect to UBS's bonuses. Apparently the poor Swiss bankers won't get cash this year: everything above a measly $750,000 is going to be paid in stock. Is this kind of tight-fistedness going to backfire? Not if Goldman Sachs is any indication. Back when it was still a partnership, Smith says, "the line at Goldman was the partners lived poor and died rich."

Indeed, I can see other banks looking jealously at UBS and trying their hardest to follow suit. It makes very little sense for compensation to be structured so that you earn loads of money in 2006 for piling on too much risk, and then get fired in 2007 when those bets go bad. (It makes even less sense if you're then compensated in 2007 all over again for your 2006 "performance".) Much better that you should earn relatively little in 2006, but get lots of equity in the firm which pays off in spades if your earnings turn out to be non-fictional.

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