Friday, March 6, 2009

Markets Adjust, but at a Price

UBS has increased the salaries of its top investment bankers, in reaction to limits governments are placing on bonus payments. Bonuses have the virtue of attempting to reward performance, so a move to increase the proportion of compensation from salaries and limit bonuses means the incentive to perform better is weakened.

Financial firms are fighting back against restrictions on their business practices to try to retain key personnel, as governments are creating perverse incentives in the marketplace.

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