Tuesday, January 24, 2006

Acceptable and Unacceptable risk/rewards

We will always lament if we measure pay/reward on an absolute scale. Executive Pay, in fact, all Pay, should be measured not on an Absolute Scale, but a Proportional Scale based on Value Added: Revenue generated, Cost Savings, Efficiency, etc. Yes, there are some horrendous allocations of pay to some shitty Executives such as the ailing Ford Motor Co officers(and that's all the media will rave about), but there are also pays/bonuses to execs that are inline or far less in proportion to Value Added than even the rank and file workers. The worker screwing in bolts on the conveyor belt will on average earn around 40K and not 2Mil, but the incremental amount of revenue brought in from the rank and file worker may be -10% to + 3% per 40K compensation, whereas the 2Mil exec may incrementally generate revenue of 20-30Mil, or 1000%. In such occurrences, you shouldn't bite the hand that feeds you, ie) the exec generates the rank and file worker's salary. Or on the other hand, the lousy exec at 2Mil, will generate a -1000% return, such as the fools at Ford Motor Co. which wipes out a big portion of rank and file. I remember trading on a minimal salary, and generating 400% more for the firm, than my salary, but my bonus wasn't in line(that's a gripe). But when you hear of lavish bonuses from say, a Goldman Sachs(Goldman's Sac) you have to realize one cannot argue with Net Profit. Sure, she got $10Million last year. But she made the company $200Million, and so on…

2 Comments:

At 11:24 PM, Anonymous goldmans_baby_hammock said...

Goldman sac dislikes Goldman Sachs ever since he provided analytic support for a private wealth team that jumped ship to UBS. Their icy, nazi like bureaucratic efficiency failed to align with my winning personality. I use this handle because it's versatile and it amuses me.

 
At 12:22 AM, Anonymous Lockheed hayheehoo said...

that's eerie... i thought i knew who you were...

UBS asset management good environment... not despotic... some good access to formidable hedge funds...

 

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