If you've read any of Daniel Pink's work (specifically that dealing with intrinsic vs. extrinsic motivation), you won't be surprised by the fact that earlier today he tweeted a link to the Washington Post article, "Why tomorrow's Wall Street leaders don't like bonuses."
The gist of the piece is that employee--i.e. fund manager--frustration stemmed from their employers issuing bonus checks in lieu of performance reviews and feedback. On the surface, such frustration would seem non-sensical: After all, who doesn't like big, fat checks and who doesn't dread review time (particularly when filling out your self-assessment form is as long and agonizingly introspective as writing a Russian novel)?
But, looking beyond the superficial, a check doesn't really tell you anything--other than you're not fired, particularly when you work in a firm where discussing compensation can land you out on the curb. So there's no sense of performance, simply by virtue of the lack of comparison. And if the formula for computing bonuses isn't clear, there's no benchmark by which to measure oneself. Which in turns leads almost inevitably to suspicions of favoritism, gaming the system, etc.
But what I think is missing from the commentary is simply the bare-bones reality that investment firms have nothing to offer their clients except human judgment. Their sole job is to take in money and turn it into more money with reasonably gratifying regularity. Some of this function could be offloaded to computer algorithms, but that's precisely the kind of thing that becomes a commodity in a very short time. Which brings things right back to hiring the best people and making them even better as the only viable market differentiator.
In other words, if you work in Wall Street and you aren't investing in other companies, your only other value-add is to invest in those who are bringing in the cash. Profit-sharing is one thing; annual bonuses are a cop-out for real development--even when they don't encourage short-sighted and/or sub-ethical behavior. To me, the wonder is not so much that the house of cards came down in 2008, but that anyone is able to build it that high in the first place.
