After analyzing the finance industry I think it is pretty clear that for the past few years financial institutions has been focusing on short term results.
And during the boom periods like the recent housing boom, issuing sub prime mortgage bonds and lending to everyone and anyone is a good strategy because so long as house prices were high any mortgage defaults would be absorbed by the resale/remortgaging of property at a premium. However when the housing market crashed banks had no where to turn (apart from government) to cover the loss.
Financial industry assess performance by looking at the companies immediate result. In order to have investors happy they must ensure their respective companies are performing.
And I blame the characteristics of the financial system as the primary cause of the mess that we are in right now. Regulators had made the financial system become so liberalized that companies are almost able to do whatever they want. Regulators needs to set up rules ensuring that banks will have enough reserves to cover themselves in such situations, they need to somehow deter banks from taking on too much risks.
As for the issue of compensation and the bonuses that got paid out; I am still of the opinion that salary is dictated by the supply and demand. So the market will ultimately correct itself if current salaries are too high.
As for the issue of bonuses; I still believe bonuses should remain. In order to grow we need individuals to be innovative and think outside the square. However financial companies need to try and eliminate the 'every man for himself mentality' and have employees concerned for the companies long term well being and not just their own gains.
To achieve this employees would need to shoulder the risks of the decisions that they make. Whether it is issuing long term stock of the company as a substitute for cash payments.
This is certainly a complex issue but if companies are somehow able to create an environment that promotes long term growth and stability, the economy will go a long way in avoiding another major financial crisis.
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I agree with the idea of changing bonuses from cash to another form of gain for the employee. I do not see how keeping bonuses in the cash catagory will change the mentality for every man for themselves. I think as times change so do how things are done and the idea of having a bonus system which will mature with time and give incentive to stay with the company and stay loyal to the company would be benficial.
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