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Vikram Pandit

Two Ways to Change How Banks Give Bonuses

Adam Rust's picture

Posted January 11, 2010

The next week will test the patience of the American taxpayer. Some of the nation's largest financial institutions will hand out bonuses to their top staff. Many of those bonuses could be quite high. At any level, those rewards are certain to strike a sour note.

Pay at many banks revolves around the bonus. For many bankers, the bonus exceeds their annual salary. Bonus culture creates its own small economy, enabling purchases of all kinds of high-priced luxury goods. Tiffany rings, 37 foot Tartan sloops, and heliskiing trips.

Banking rewards risk-taking. The structure of bonuses reflects those values. Perhaps it even accentuates that culture. Many incentive plans reward executives for exceeding performance.  Very few penalize those same executives when they fail to meet their compensation metrics.  In that

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