BONUSES and RISK

From Mario Iacone, July 7, 2009

BIGGEST PROBLEM with BONUSES may be that they encourage EXCESSIVE RISK TAKING!

An investment manager whose performance is down might take unnecessary risks in an attempt to increase performance to qualify for a bonus.

Findings from the Obama Administration and the Treasury Department indicate that such may have been the case in many areas of the financial sector.

The following quote from statements by Timothy Geithner says it all.

“He said that Wall Street's pay practices, which include big year-end bonuses, encouraged excessive risk-taking and helped precipitate the financial crisis.”