海角大神

Harvard Business School professor Mihir Desai believes American companies and investment firms have erred鈥揾orribly鈥揵y linking manager compensation so tightly to financial market performance. In the current Harvard Business Review, he identifies this as a giant FIB, a Financial Incentive Bubble:

American capitalism has been transformed over the past three decades by the idea that financial markets are suited to measuring performance and structuring compensation. Stock-based pay for corporate executives and high-powered incentive contracts for investment managers have dramatically altered incentives on both sides of the capital market. Unfortunately, the idea of compensation based on financial markets is both remarkably alluring and deeply flawed: It seems to link pay more closely to performance, but it actually rewards luck and can incentivize dangerous risk-taking. This system has contributed significantly to the twin crises of modern American capitalism: governance failures that cast doubt on the stewardship abilities of U.S. managers and investors, and rising income inequality.

Mihir has nothing against well-functioning financial markets. He emphasizes that they 鈥減lay a vital role in economic growth by ensuring the most efficient allocations of capital,鈥� and he believes that capable managers and investors should be 鈥渞ichly rewarded鈥� when their talents are truly evident.

The problem is that聽incentive compensation based on financial performance does a lousy job of聽distinguishing skill from luck. In finance-speak, managers and investors often get rewarded for taking on beta, when their pay really ought to be linked to alpha. In practice, luck聽gets rewarded with聽undeserved windfalls (that are by no means offset by negative windfalls聽for the unlucky).聽And聽that, he argues,聽results in an important聽鈥漨isallocation of financial, real, and human capital.鈥�

Well worth .