Toxic compensation is catching on

My one contribution to the 2008 financial bailout was an idea back in September to motivate members of Congress, Treasury bosses and Fed honchos to fix the markets by paying them in mortgage-backed securities. If the bailouts fizzle, the compensation is worthless. If the economic fix works, the power brokers are in the money.

Uncle Sam hasn’t adopted this scheme, but toxic compensation seems to be catching on in the private sector. At least, the eminent Credit Suisse is on board, according to Thursday’s online Wall Street Journal:

ZURICH — Credit Suisse Group said Thursday it will use up to $5 billion of its own illiquid assets such as mortgage securities to pay senior staff year-end bonuses at its investment bank, a move meant to spread risk more evenly between the bank and its employees.

The Zurich-based bank plans to pool commercial mortgage-backed securities and leveraged loans it can’t sell because demand has seized up, then dole out units in the entity to managing directors and directors as part of this year’s pay, according to a memo made available by a spokesman.

I don’t imagine investment bankers accustomed to stacks of cash will be celebrating this New Year’s over the new-fangled paper scrip. But maybe financial innovators, suitably motivated, can figure out how to get the markets unstuck. And toxic compensation may be better accepted on Main Street than the cash still being paid to some executives on Wall Street.


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