Clawbacks and Consumer Loans

By September 28, 2016Bitcoin Business

Wells Fargo. Clawbacks have been the hot new thing in bank compensation for the last few years, but I confess it never occurred to me that they’d be used much against people still employed by a bank. The clawback’s main benefit is that it solves the "I’ll-be-gone-you’ll-be-gone" problem: If you make a lot of money for a bank, and the bank gives a lot of the money to you, and you quit to spend more time with your money, and then it turns out that you made the money by fraud or by taking excessive risks, the bank can come after you and take the money back. It’s a way to discipline bad employees who are no longer employees, and to deter current employees from being bad in slow-burning ways. It’s a lesson learned from the financial crisis, when people got paid a lot of money based on an annual marking to market of decisions that turned out, in the long run, to be catastrophes. But if you’re still an employee there are other ways to discipline you. The bank can reduce your bonus for this year, or move your desk somewhere bad, or fire you. Firing you is an obvious choice: Traditionally, when the stuff you were doing turns out to be reckless, or fraud, no one wants you around any more. Of course if it was bad enough, they can fire you and claw back your money. Some misbehavior is bad enough to cut off your entire future at the bank; other misbehavior is even worse, cutting off your future and also coming for some of your past. But clawing back an executive’s pay without firing him sends a strange message. Something like: Your career here was built on a lie, but stick around. Or: Sure your […]

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