These guys are savvy…

I know these guys … I don’t begrudge them their compensation.


Quick:  Who said it about whom?  If you guessed the President said it about Jamie Dimon and Lloyd Blankfein you would be correct.  (I’m sure if you forced me to source these statements I would be able).

But in a just released study, Bank Executive Compensation And Capital Requirements Reform conducted by Sanjai Bhagat, University of Colorado at Boulder and Brian Bolton, University of New Hampshire, brings into question whether “these guys are savvy businessmen”.  In summary:

We study the executive compensation structure in the largest 14 U.S. financial institutions during 2000-2008. Our results are mostly consistent with and supportive of the findings of Bebchuk, Cohen and Spamann (2010), that is, managerial incentives matter – incentives generated by executive compensation programs led to excessive risk-taking by banks leading to the current financial crisis. Also, our results are generally not supportive of the conclusions of Fahlenbrach and Stulz (2011) that the poor performance of banks during the crisis was the result of unforeseen risk.

These very important findings, which I expect will be a critical exhibit in the event that additional litigation presents as a result of this report.

The paper is dense and not easily accessible in terms of comprehension.  Therefore, this blog entry by  Simon Johnson, (the former chief economist at the International Monetary Fund, and co-author of “13 Bankers”) helps distill the essential facts.

No worries; Ken Feinberg will get on the case.

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