One unsettling thing about those lavishly compensated Wall Streeters is that they seem to be exactly identical, like zombies speedwalking the mall or fake bling on reality TV. They may look different: tall, short, fat, thin, full-haired, bald, shaved, toupeed, blinged out or blingless. But beneath their custom exteriors -- pinstriped, seersuckered, standard blue, worsted, tweeded, tropical-suited -- beats the same heart, stirred by the same determinants of behavior. If you give a Wall Streeter 100 bucks, he will buy a lottery ticket and a single malt Scotch. If you give him (or her) a million dollars in shares vested over 10 years, he (or she) will count paper clips, kiss the derrière just above him (or her) and fuss over risk. If you give a Wall Streeter 100 million smackeroos, he (or she) will do his (or her) best to destroy himself (herself), the firm and the world accessible to the Internet. Many believe that the latter theory explains the recent crisis. There is apparently a law of human nature lurking here, based on a beguiling psychological idea, the validating research of which I'm sure exists somewhere, though I can't quite lay my hands on it. Let me put down the jelly doughnut.
The fact is, our model for incentive-based compensation, its relation to risk and its pathways to the dark marshlands of motivation, is, if anything, more fantastically rudimentary than our model for rational and efficient markets. This is saying something. In the latter case, we're all members of the homo economicus tribe, seeking our rational self-interest, which means (in shorthand of shorthand) maximizing economic performance. All that maximizing produces markets prancing randomly along efficient frontiers; that is, the best of all possible worlds. In our pay model, populated by homo plutocratus, we view the level of cash compensation, particularly bonuses, as directly correlated with the propensity to assume risk: the fatter the bonus, the nastier the risk. (In fact, economicus and plutocratus are related, like out-of-wedlock siblings; they're also cousins to homo politicus, the model for shareholder governance. What a family!) Now there may well be masses who behave this way, though I seem to know many wayward, nonmaximizers and I could easily imagine folks who would react in nonstandard ways to promises of cash. Personally, I squint into the mirror every day and wonder: What would I be if someone handed me a bag of money? A plutocratus, an economicus or one lazy son of a bitch?
It's a confounding problem that gets worse the more you pick at it. There is no predicting the effect of cash, at varying levels, on individual psyches. Incentives have shelf lives: Their bite diminishes over time, unless you raise the ante. People have shelf lives: The effect of comp changes as individuals age, based on his (or her) background, or his (or her) predilection for fancy digs or slick cars, or his (or her) needs. A lot depends on the stuff you crave: Has anyone investigated whether the desire for a Hamptons bungalow stirs more risk appetite than, say, dates (mostly for him) with supermodels? Perhaps the model matters. Maybe the model wants the house. What's the incentive-based tipping point between stodginess and recklessness? When is enough, enough? When is too much, wretched excess? My million is your 10 million and someone else's uncountable jillions. What is more important: money or power? And love? What's the shelf life of love, Mimsie?
Let's refocus here. We must reduce, distill, concoct a model precipitated from thousands of wriggling egos, ids and libidos to make this comp project work. That's how we do things in markets, economies, democracies. It's a long, nonlinear equation producing, like a toaster, a single slightly charred answer, maybe two. I'm aware that so much cash going to bailed-out folks threatens to destabilize the ship, or incite a small mutiny. But here's the problem: Any rule for any gaggle of souls is bound to go awry somewhere, to set off wrong incentives, produce random injustices and not solve anything. True, catering to individuals is a luxury in a crisis. And companies enforce rigid pay regimes all the time (usually on nonplutocrats); but then who, besides some fantasizing business philosopher, ever saw a corporation as a monument to equity or good? The real problem is that relations between pay and market risk go deeper than some rules and a faux-Latinate model. That tie to the markets is revealing, and it's no coincidence that pay began to explode when markets began to tell everyone from Wall Street to Main Street that they were the ultimate measure of man. This entire debate suffers not only from the fallacy of reductionism, but from a confusion of symptom and disease. Simple answer: Maybe we like the cartoon because the reality is too much to bear.
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