UBS Bonus Scheme Lauded For “Aligning Incentives”

Some bonuses at UBS reportedly will be paid contingent on the bank’s meeting capital requirements. This is an example of a compensation incentive plan that will reduce “systemic risk,” and it should be emulated by other banks that are big enough so that if they failed they presumably would need a taxpayer bailout. This post is based on a memo from a group of academics known as the Squam Lake Group. A more general case is also made, for major banks to be required to hold back about a fifth of a senior manager’s total compensation, which would be forfeited if the bank needed a bailout.