Did the Hedge Fund Model Create an Incentive Bubble?

激励补偿nsation plans at thousands of U.S. corporations follow a structure that the alternative investment industry made fashionable. Financial markets now dictate executive compensation on the assumption that financial markets faithfully reflect executive performance. But new research declares this assumption false and dangerous.

Writing in the March issue of theHarvard Business Review，Mihir Desai及时申诉到激励赔偿教堂的前门。他的文章的标题，“激励泡沫”应该与花旗集团股东共鸣，这些股东最近通过夹住他的薪水来对CEO Vikram Pandit进行僵局。

As the Mizuho Financial Group professor of finance and the senior associate dean for planning and university affairs at the Harvard Business School, Desai attacked deeply held religion in executive suites. While underscoring his own fidelity to shareholder capitalism, Desai tagged blame for a looming economic catastrophe to the dubious notion that incentive programs align interests of managers and shareholders.

Far from aligning interests, skewed incentives put capitalism at risk. “The twin crises of modern American capitalism, income inequality and governance crises, are traceable to the growth of these incentives contracts,” Desai says. Incentives disrupt allocation of financial and human capital, not least wealth distribution that spurred the Occupy Wall Street movement. “In the last 15 years it has been mediocre to be a shareholder, very good to be a manager, and extraordinary to be an investment manager. I’m not sure that’s sustainable,” says Desai.

The emperor has no clothes, he warns. Boards of financial and nonfinancial firms alike have surrendered performance evaluation and compensation to financial markets that cannot disentangle skill from luck. According to Desai, “that basically says ‘I don’t know if you are a good manager. I’ll just see what the market says.’ But over short horizons markets can’t figure out who’s good and who’s not.” Short horizons spur poor decisions in pursuit of windfalls. Because managers take home piles of money often enough, a warped sense of entitlement dulls any motive to fix the problem.

One culprit stands out. “The underlying problem is pension funds,” Desai says. “They are outsourcing their monitoring and investment functions in order to avoid responsibility when things go wrong.” If results fall short, pension managers can point fingers. But even good results by private equity funds are suspect. “Think about the illiquidity they impose on investors,” says Desai. “Private equity funds lock up assets for several years. Then they report they did slightly better than the S&P. But they used leverage and were illiquid for several years. Benchmarking for those factors can make returns look significantly worse.” Like his fellow academics Eric Stafford at Harvard and Jakub Jurek at Princeton, Desai contends that after adjusting returns for multiple risks over realistic time spans, hedge funds that post good records actually destroy value.

Remedies exist; they just go against the grain. Board members must resume responsibility and accountability for CEO evaluations. That’s not to say reject all advice and benchmarks that outside consultants can furnish, but rather for board members to roll up their sleeves and take a much harder look at what a CEO has actually accomplished each year in excess of average performance. Forget the idea that managers should automatically participate when stock prices gain. Instead, restore restricted stock and vesting tied to longer tenures. A fresh look at indexed incentives might advance this goal.

与此同时，机构投资者亚博赞助欧冠必须依靠激励赔偿的逆风。赌注太高，无法忽视误导对奖励的信仰。尽可能地，无论倡导者所说，激励计划都不能导致alpha萌芽。那些说否则无法衡量风险的人。在最糟糕的情况下，德伊警告说，由此产​​生的经济不平衡将在我们挖出最后一个之前引发下一个危机。