The FT on Banker Pay

Britain's Financial Services Authority "should be fighting to build a global consensus around the idea that regulators should ensure that institutions reward long-term profit-making rather than short-term risk-taking," the Financial Times argues in an editorial today. This seems like it would be a challenging task for regulators, who can barely fight fraud and set sensible monetary and fiscal policy, let alone undertake the additional task of devising ideal corporate compensation structures. What's more, the "reward" that regulators are supposed to ensure is already in place. What better reward could there be for long-term profit-making than long-term profits? If any board or management can devise a compensation system that will reliably produce such profits, investors will beat a path to their door without needing a lot of encouragement from regulators. It's the long-term profits themselves that should be a better incentive than a gold star from government regulators. Remember, too, that while the distinction between short-term and long-term profits is one that is often worth keeping in mind, one way that long-term profits are accumulated is by amassing short-term profits consistently over a long series of short terms.