For all the stick hedge funds get and the high fees they charge, at least it's justified in the sense that they are paid based on their performance. If their performance suffers, they suffer along with it. It's both a carrot and a stick method in that sense because they don't get paid if they don't grow their investor's money. I remember reading how Sam Walton used the same performance bonus and ownership technique by giving owners of his Wal-Mart stores a 5% stake in the store so they would benefit from better sales.
For all the turmoil in '07 from the banks, bonuses are still disgustingly high, especially in the case of Merril Lynch. On the back of revenue of US$11.25billion, their employee compensation is US$15.9billion which amounts to 141% of their revenue. Where is the logic? If I do badly, I get a huge amount, if I do well, I just get an even more disgustingly huge amount. In some sense, it makes sense because they don't want to lose their talented managers to other companies which would then be a double blow but even so, is it justifiable to shareholders? In such a bad year, with low dividends and a falling share price, there is this highly debatable compensation plan which, if I am not wrong, comprises share options which will only further dilute the shareholdings. I cannot see the merits in such businesses where greed and the institutional imperative frequently creates a mess to be sorted out. It's like picking up a magic lamp with a genie inside, when it's good it's fantastic but more often than not, with that sort of power coupled with greed, something's bound to go wrong as the magic (or liquidity in monetary context) consumes you.
For all the turmoil in '07 from the banks, bonuses are still disgustingly high, especially in the case of Merril Lynch. On the back of revenue of US$11.25billion, their employee compensation is US$15.9billion which amounts to 141% of their revenue. Where is the logic? If I do badly, I get a huge amount, if I do well, I just get an even more disgustingly huge amount. In some sense, it makes sense because they don't want to lose their talented managers to other companies which would then be a double blow but even so, is it justifiable to shareholders? In such a bad year, with low dividends and a falling share price, there is this highly debatable compensation plan which, if I am not wrong, comprises share options which will only further dilute the shareholdings. I cannot see the merits in such businesses where greed and the institutional imperative frequently creates a mess to be sorted out. It's like picking up a magic lamp with a genie inside, when it's good it's fantastic but more often than not, with that sort of power coupled with greed, something's bound to go wrong as the magic (or liquidity in monetary context) consumes you.