07/20/09
Compensation Reform by Shumeet Banerji

Booz & Company CEO Shumeet Banerji, an expert in the area of banking compensation reform, took his ideas to the pages of one of the U.K.'s leading newspapers, The Sunday Telegraph, on January 16, 2010 in an editoral piece titled "Bonus Taxes Are a Weak Weapon."

In the article, Banerji expresses his discontent over the fact that in both the U.S. and the U.K., calls for increased taxes on bankers' bonuses have not addressed the idea that such tax revenue should be used to ensure taxpayers against future financial crises.

Banerji points out that while it is easy to blame the greed and and hubris for the banking crisis that fueled he Great Recession, the real villain in the picture is, in his words, "the disconnection between bank capital and risks borne by both banks and society, and compensation structures, particularly those of traders." The system of paying 50 percent bonuses every year to these traders, he says, "reinforces money as the only reason to work at a bank."

In conclusion, Banerji states that instead of widespread, blanket reforms, there should be a "reassessment, within each bank, of how the triangle principle should be applied; that is, how to interweave the ways risk is taken, people are paid and capital is allocated, and hence the share of profits that go to shareholders, compensation and insurance."

Further enforcing these ideas, Banerji will be appearing on an interactive panel at the World Economic Forum in Davos, Switzerland entitled "Rethinking Compensation Models" on January 27, 2010.

Read "Bonus Taxes are a Weak Weapon"

Read Banerji's strategy+business article "A Better Way to Fix Bankers' Pay"