Another Approach to Compensation

The problems with the traditional model of banker compensation are well known. To simplify, if a trader (or CEO) is paid a year-end cash bonus based on his performance that year (such as a percentage of profits generated), he will have an incentive to take excess risks because the payout structure is asymmetric; the bonus can’t be negative. That way the trader/CEO gets the upside and the downside is shifted onto shareholders, creditors, or the government.

I was talking to Simon this weekend and he said, “Why a year? Why is compensation based just on what you did the last year? That seems arbitrary.” When I asked him what he would use instead, he said, “A decade,” so I thought he was just being silly. But on reflection I think there’s something there.

Most approaches to solving the compensation problem focus on changing the way the bonus is paid out, not the way it is calculated in the first place. Many people think that bonuses should be paid out in retricted stock that (a) vests over five years and (b) cannot be sold for some period of time after it vests. (This is already the case for top executives–but not most employees–at many big banks.) The goal here is to tie the eventual payout to the long-term performance of the company, via its stock price.

This is better than all cash, but it still has a few problems. For one, the top executives at Bear Stearns and Lehman Brothers already had this type of bonus payout, and it didn’t help. For another, tying managers’ incentives to shareholders isn’t necessarily what you want when it comes to highly leveraged banks, since shareholders also have the incentive to take on too much risk (since they can shift losses to creditors or the government). (For this reason, Lucian Bebchuk has suggested tying long-term compensation to a basket of securites that includes not just common stock but also preferred stock and some kinds of debt.) In addition, this type of payout structure wouldn’t change the incentives for individual traders, since their bonus is calculated based on the one-year performance of their individual book, and then paid out depending on how the entire company does; even if those trades blow up the next year, chances are they won’t affect the stock price that much.

Clawbacks in future bad years are another idea, but at least as proposed by the Obama administration, I think they would only apply in cases of material misrepresentation. Also, it’s hard to claw money back from people who have left your company. In the business world generally, sales compensation agreements often have clawback provisions, but it’s generally understood that you’re not going to sue your former employees to collect on them. (Besides, often the money has already been spent.)

Simon’s idea (at least as I’ve thought it out) is to change the way the bonus is calculated in the first place, instead of (or in addition to) the way it is paid out. He’s right: why should your bonus be calculated every 365 days and based on the last 365 days’ results, weighted equally? For one thing, this kind of lumpiness encourages behavior that is bad for the company; think about all those discounts that salespeople give at the end of a quarter or a year trying to make their quota. More important, Simon’s main point is that December 31 is just too soon to determine how well an individual did during that year.

Instead, what about making your 2009 year-end bonus based on your performance in 2006, 2007, and 2008? That is, by the end of 2009 you would have better information about whether the trades placed in those years had turned out well or badly. There are all sorts of variations possible: you could weight the years differently; you could include 2009 (with a low weight because it’s too early to tell); you could do it on a quarterly basis to smooth out the lumps; you could pay out on a quarterly basis; and so on. But the basic principle is that you don’t calculate the bonus until enough time has elapsed to ensure that the employee deserves it. If you wait long enough, you could even just pay it out in cash instead of restricted stock.

The first objection will be that new employees get screwed, since they will get lower bonuses until they have been with the company for a few years. There are a couple possible solutions to that. The one I like less is that for someone who joins on 1/1/2009, his 2009 bonus could have a full-size target and be based on 2009 performance; but his 2010 bonus would be based on two years of results, his 2011 bonus on three years of results, and his 2012 and later bonuses on four years of results.

My preferred solution, though, is that people simply get smaller bonuses (and maybe somewhat higher salaries to compensate) when they switch companies, and only get the big bonuses after they’ve been around a few years. (You can imagine a new equilibrium where bonuses for employees in their first years are lower than today, but bonuses for long-term employees are higher. I’m not saying in this post that total compensation has to go down; that’s a separate issue.) In the technology startup industry, employees get stock options that vest over four years (with a one-year cliff). If you leave after two years, you give up your last two years of options (and unless the company is already public, you have a difficult choice about whether or not to exercise your options). This increases the cost to the employee of switching companies, which is good on two levels. First, as far as the division of the pie is concerned, it benefits employers (shareholders) relative to employees, which would be a good thing for the banking industry (as opposed to, say, the fast food industry). Second, it makes the pie bigger, since companies are more productive if they have more stable workforces. For these reasons, banks should actually want to move to this type of bonus calculation.

Now, how do we get there from here? Like many markets, if one firm changed its policy and the others didn’t, it would be at a competitive disadvantage. (Of course, this problem exists with all proposals to change compensation practices, including the restricted stock ideas.) First, the banks could possibly get there on their own, just like airlines do when they raise prices; one announces a change, and then (sometimes) the others copy it. This could be helped along if one of those famous self-regulatory bodies would recommend this as a new compensation structure. Or if Goldman took the lead; since (I think) it has longer average tenure than most banks, if it changed its policy today, fewer employees would be affected than at other banks; and if you’re just two years into your banking career at Goldman, would you really leave for Citigroup now rather than sticking it out at Goldman until you have the tenure to take advantage of the new policy? Second, we could have legislation. Or third, we could have regulatory action, since the Fed has already said that compensation practices fall under its jurisdiction as a guarantor of the health of individual bank holding companies and the financial system as a whole.

Changing the basis of the bonus calculation is a more direct way of dealing with the current incentive problems than changing the form of the payout. How about it?

By James Kwak

48 responses to “Another Approach to Compensation

  1. I have an even simpler approach to compensation: Pay them less. Set the top marginal tax rate for financial sector workers at 95+%; tax short-term (< 1 day) trades at 99%; and so forth.

    I have yet to hear any compelling argument for not doing this.

  2. Organizations and employees will figure out how not to be classified as “financial sector” and thus avoid the tax (q.v. AIG, a supposedly “non-bank” entity).

  3. See Michael Lewis’ _Liar’s Poker_ to understand some of the reasons why traders’ bonuses got so big to begin with. Traders, egotistical by nature, see that their activities contribute millions to their bank’s bottom line, and feel entitled to their share. For this to work, I think you would also have to enforce the same kind of amortization on the accounting rules of the banks. That way no one — not shareholders, CEOs, traders, or mail-room clerks — gets to recognize profits until we are convinced they are real.

    Of course, by setting any sort of time scale, you are betting that we / the markets / reality are more patient than the bankers and traders. The CBO generally uses a 10 year horizon for budget projections. Congress responds with legislation that doesn’t blow up until year 11. Should we expect better of investment banks?

  4. I think this is a good post, but looking at it realistically you’re not going to get anything better than 5 years. Even 5 years would be something of a miracle. Look at all the criticism Kenneth Feinberg has gotten. The WSJ (and I’m sure others) make him out like he’s the Anti-Christ.

    In spirit I’m with Simon 100%, and I will cheer behind Simon every time he says it, but realistically it’s like trying to get Bernanke’s confirmation denied, it’s just wasted effort.

    By the way, I’m not being a “smart alec”, I’m honestly and earnestly curious–if you don’t think Bernanke is best, who would you choose as Federal Reserve Chairman???

  5. There are many things I do not expect government to do competently, but finding the money and taking it away? That I think they know how to do.

    In short, I believe it would be easy to solve the problem you identify if the will existed to solve it.

    Developing that will is the hard part.

    I do not even have the words to say what I mean. Here in Oceania, where everyone only knows NewSpeak, “industry” means finance and “market” means casino… So it is impossible to propose confiscating banker wealth without sounding like some hippie Commie freak.

  6. Jeffrey Anderson

    Ignoring supply and demand is a great idea! It worked for Dubai!

  7. By the way, I’m going to lower myself here by plugging myself. What else am I going to do??? I gotta get SOMEBODY to visit the damn thing. I started a blog. It just has 4 posts now. I’m a lazy SOB so I’m not sure how it will go, but I hope it can be something I’m proud of and give people some useful information. Mainly it will focus on old-fashioned Benjamin Graham style investing, but also I will discuss a wide range of topics (even outside business/economics) when the spirit moves me. Visitors are warmly and desperately welcomed.

    http://www.grahambrokethemold.blogspot.com/

    Sorry for wasting James and Simon’s space with that.

  8. why wouldn’t i just fire my employees after 2.9999 years and hire new ones?

  9. Same reason you don’t fire them after 0.9999 years to avoid paying them an annual bonus…

  10. “To simplify, if a trader (or CEO) is paid a year-end cash bonus based on his performance that year (such as a percentage of profits generated), he will have an incentive to take excess risks because the payout structure is asymmetric; the bonus can’t be negative.”

    It is also asymmetric in that negative results tend to be larger and less frequent than positive results. There are risk takers who tend to take risks with low probabilities of success, but high payoffs and low costs when they fail. (Like entering the lottery.) Successful risk takers, like business executives, tend to take risks with relatively low probabilities of failure, but high costs when they fail. (Thus they generate a good track record.) Thus a short time period is unlikely to reveal how much they cost the company.

  11. Thank you.

    My eyes glazed over a few paragraphs into this gobbledygook and I came down here to say the same thing you did.

    It really is just a matter of political will. Are Americans a morally, spiritually vigorous people or not?

  12. How about require financial firms to pay the traders and salespeople with a share of instruments they trade. That way their comp is tied directly to the good (or damage) they do for their firms, clients and counter-parties and they would profit (or not) over the same length of time.

    In addition you could pay some of the trader’s salary with a “clawback” derivative that would in fact lose money if the instrument went south after a period of profitability.

    Remember most of these deals have cash settlements that occur every quarter so the traders would see some cash pretty quickly,

    If the financial professionals want to be payed like partners I can see reason why they shouldn’t be compensated like partners.

  13. The demand of the real economy for these filthy parasites is zero.

    So let’s set the tax rate so the supply will be zero as well.

  14. Because firms incur alot of cost in training employees. Also there is an assumption that the trader is creating more profit than he costs (otherwise he would be fired) so he continues to be of value.

  15. I guess the obvious question is– what if they are real profits? If someone’s trading flow, the profits are real. When an asset is held, desks usually take reserves against it. So the problem of incentive comes up again unless you have a good way of distinguishing real profits from non-real profits. This seems to indicate that would really should be regulated is how loss reserves are taken.

  16. “Like many markets, if one firm changed its policy and the others didn’t, it would be at a competitive disadvantage.”

    That is an unwarranted assumption. The firm may in fact have an advantage. In addition, you would get the type of people and the type of behavior that you want.

    Now, of course, if your business is to profit from the payoffs and to shift the costs to others, then that’s different. But the cure to that does not lie in the compensation structure. OTOH, if you are the one paying the costs, then it makes good sense to impose a compensation structure that reduces the risk to you.

  17. Anonymous Coward

    As a long-term investor, I agree with Johnson on the 10-year time frame, but I’d also love to see annual incentive compensation for top executives that is at least partly based on *future operating results* such as, for example, future increases in annual free cash flow (as opposed to incentive compensation that is based on future stock prices, which are subject to the vagaries of the market).

    Incentive compensation structured along those lines would work like a pension plan on steroids, rewarding top executives for building businesses that have superior long-term prospects.

    CEOs would focus primarily on long-term value creation (as opposed to stock-price appreciation), and without a doubt would more carefully choose their successors.

    One can only wish…

  18. “Nickels” vs. “Swans”

  19. Unfortunately, such a CEO would likely be severely punished by the Board of Directors for pursuing the long-term interests of the _company_ in preference to that of the _shareholders_.

  20. Ted K: It appears that some of the images in your theme may not be in the correct location. I’m getting some broken image link icons.

  21. Since the shareholders own the company, their long term interests generally coincide. Investors with a short time view can buy shares in a different company, if they wish.

  22. anti_fascist_freedom_fighter

    Who instead of Bernanke? Why, Simon Johnson, of course. Damn that was easy!

  23. My solution is an end to public corporations. Period.

  24. anti_fascist_freedom_fighter

    I don’t understand. Exactly how does this plan fit into the current “let them eat cake” incentive scenario? I mean, what if the CEO wants a new Gulfstream NOW?

  25. Give me personally the path I need to walk to get such measures in to place, and I’ll walk it.

    That’s the problem though: nobody can tell me what the hell I can actually do outside of “Write a letter to your (captured!) representatives!” Right. Because that always works so well.

    So what can I actually do and still be able to pay my bills tomorrow? Or do I have to sacrifice my rather meager life so everyone else can come out well? What can actually be done right now by normal people like me that will actually make a difference? Can it be done quickly enough to prevent another disaster? I still haven’t heard real ideas for that anywhere. I talk about everything I hear from the intelligent folks here with as many people as possible. I spread awareness as much as I can. I try to write politicians when I can, as futile as I think it is.

    What else can I possibly do that will CHANGE something instead of doing something to feel like I’m doing something?

  26. Ending them period would be throwing out the baby with the bath water. Reducing the legal protection they afford and removing their rights as “people” would certainly solve a lot of problems though.

  27. Did someone just lose their marbles?

  28. Thanks. Probably the Bloomberg. I’ll see. I apologize for that.

  29. engineer27,
    I do believe what you’re saying. And I appreciate you telling me. Those links are working for me when I double checked them. Maybe it was a temporary thing or some glitch which I cannot explain due to my lack of tech knowledge. I think the links should work for most people.

  30. So, the issue is executive compensation, eh? I like Simon’s thinking regarding the immediacy issues, and we all know that, assuming that those who get bonuses are under some form of contract or at least a written schema. Easy for lawyers to find loopholes, unless you use the old KISS principle. I think that performance bonuses should be annual, but should be placed in an inviolable escrow account for a 10 year lock up each year, such that if the company looses money, the claw backs can be from that escrow pool, and if it has to be bailed out, the escrow would be used first to rescue the failing company. At the end of ten years, the executive could only receive his bonus if the company was still viable, and it would be reduces accordingly if he (or she of course) left before the expiry of 10 years. The escrow should be held by the FED (why not, since they are pumping money in anyway?). I agree that this schema could be offset to an extent by higher salaries, but the bonus pool would be reduced by any increase in salary greater than the cost of living. This, I believe could substantially and dramatically reduce the risk profile of companies. This needs to be legislated, and, if structured this way, could apply to all companies, not just banks and other financial entities, and could actually mean much in the redevelopment of the middle class.

  31. No one in this country will accept a complex compensation model. In fact, I don’t think the majority will ever accept the government fixing compensation, and in that respect, I’m not sure I don’t agree with the purported majority. Over time, the compensation regulators are subject to capture by political forces that oppose regulation in this area.

    So how do we achieve the goal without offending the majority or adopting a system that is sure to be eroded over time? I suggest two approaches.

    The first, discussed above, is the tax approach. Compensation above a certain level could be subjected to very high marginal tax rate. Set the income level high enough, explain to the public that it is necessary to reduce the national debt, recoup the funds used to save the banking system and pay for the war on terrorism (or whatever it is called today), and my bet is that the public will buy it.

    The second approach, which is the one I prefer, is to mandate that all investment banks (after they are split off from commercial banks and insurance operations) be 100% employee-owned. They can be allowed to raise money in the debt market. CDSs should be prohibited, at least on investment bank debt, so debt holders will be forced to monitor risk. Take this approach and the bankers will moderate their compensation asap to preserve capital. We didn’t see as many widespread, out-sized bonuses when investment banks operated as partnerships. The bankers will monitor the traders and the traders will monitor the bankers and the debt-holder will monitor both bankers and traders to prevent outsized risks.

    The latter approach has the benefit of being a market-driven solution that reverses some of the practices that drove the economy into the ditch. The former can be sold as a means to reduce the public debt and recover our investment in the banking system, but is more subject to political erosion. But both are preferable to the appearance and practice of the government micro-managing compensation. Micr-management goes against the grain and is not acceptable to the majority, at least not for long.

  32. I don’t think writing politicians, voting, or doing anything else within an utterly corrupt system will ever help.

    I’d tell people if that makes them feel better personally than keep doing it, but if it doesn’t than don’t bother.

    As for what we can do, the answer is not quick and easy. But we have to detach ourselves from the greater economy as much as possible, stop using credit cards and anything else affiliated with the system, deal only with credit unions and small, local banks, and every kind of similar measure.

    Above all we have to stop buying worthless junk.

    We have to stop being consumers and once again become citizens. That’s how America lost its way, when we were seduced into the great consumer scam in the years after the war.

    More broadly, we have to rebuild our local and regional communities, and as much as possible withdraw from the fraudulent larger structures.

    We need to relocalize our economies and reorganize ourselves politically along local and regional lines. (I’d definitely tell anyone that if you want to become politically active, look to be active at the local and at most state level. All federal-level politics are nothing but organized crime by now.)

    None of that will be easy. It’ll be a lot of hard work. But it has to be done.

    The only alternative is reduction to serfdom. I mean that literally. Read a book about medieval feudalism, and there’s America’s future now that cheap oil and exponential debt are no longer available. That’s what they’re trying to impose upon us.

    That’s why we must decentralize and relocalize, to try to prevent this. It’s the only way.

    (This is the kind of stuff I write about at my blog.)

  33. Politically speaking, I might be inclined to agree–the best tactic may be to “walk things back” to pre-crisis state. This allows the government to do things that the American public is familiar with.

    In which case, progressive taxation and taking measures that ensure businesses are not effectively on the government dole or eligible for government bailouts qualify.

    This doubtless involves some old fashioned trust busting, anti-monopoly regulation, etc. Only the most hardened libertarian will object to this–but, these objections fall on their own internal contradictions. Companies that are too big to fail risk ending up on the public dole.

    Principled libertarians will get that. The only people who don’t want to get that are special interests that the public needs to combat in the common good.

    But I also think there are other problems in financial services right now, namely fraud. Name *one* part of the financial services industry that has not been discredited by this crisis.

    Why are we even discussing what these people are going to be paid? Isn’t still worse that the government is discussing what they’re to be paid instead of how much time they’re to serve? Politically speaking, a large part of the public is wondering that as well.

    We need to restore some integrity to this mess. This market is not something that the public–domestic or global– should be funnelling its pension funds into.

    What right do these employees have to extort compensation at all? Shouldn’t we be washing them out of the market?

  34. winstongator

    I discussed this and used the engineering term rectification to try to analogize:

    http://www.dailykos.com/story/2009/5/30/737071/-Boring-bankingpercentage-of-profits-to-finance

  35. winstongator

    A lot of the problem was banks booking profits with actual cash-flow being much smaller. Also, the use of off-balance sheet hiding of liabilities masked true risk. A huge amount of this can be combated with better accounting standards. One of the strengths of the US is that we have, the appearance at least, fair accounting standards – cheating doesn’t happen here. That is a major luxury that our government provides all citizens, and mostly the wealthiest.

    We should start with accounting standards, which are a place there is no disputing that change can be implemented.

  36. The compensation model isn’t the problem. The problem is the business model that generates enormous returns at the expense of the broader economy. And the ownership model which gives the real owners no dividends and no voice, allowing their savings to be chips on the poker table for Wall Street.
    If the real problems are fixed, the method of compensation won’t matter.

  37. Thanks for presenting the problem so succinctly.
    I have the answer.
    Grow up, become a responsible adult.
    Is the game rigged…Yes; opting out is not a solution, quick fixes are not available, I cried too.
    Write the letter, write two, talk to your neighbor, talk to those on either sider of your house, then accross the street.
    Neighbors is a start. Letters are a start. Do not be afraid of the Long March.
    Individually we are powereless, and thats as is should be.
    Collective action….. new ball game, new rules.
    Learn the rules.

  38. Stern Stewart came out with a compensation model much like the one you describe. They base it on Economic Value Added, something aptly measurable. Bonuses then get placed in a bonus bank and are paid out over time, I want to say three years, based on the value added to the business. Yes, the first year bonuses are a bit lower, but everything is based on measurable results.

  39. Ted K – why be self critical? Everybody commenting is selling ideas. You have gone further than most. Congrats and good luck on your blog.

  40. I completely agree that they need to be 100% employee owned. But they should be in the form of general partnerships (as they were years ago). If banks were still GPs, each general partner would be personally for the GP’s debt. THis would incentivize more conservative investing.

  41. “We should start with accounting standards, which are a place there is no disputing that change can be implemented.”

    Yes!

    Why isn’t “off balance sheet” synonymous with “fraud”?

  42. As a seasoned professional sales person for a publicly traded manufacturing company, I’d like to add that pressure to offer end of quarter discounting to receive orders is initiated by a CEO or GM in most companies I’ve worked at. The senior leadership is trying to manage earnings, knowing that their variable compensation is greatly affected by good numbers. The “bag-carrying, quota focused” sales person knows that end of quarter discounting makes the next quarter’s job all the more difficult.

  43. This is an issue we have been working through at my firm over the last year.
    What you describe should certainly should be the goal of a compensation system – in theory you want to allow enough time to know the true results of the work done over the previous year before paying out a bonus. It is possible to design such systems – see for example p10-12 in the link below for a description of how a specific insurance company attempts to do this (it is very similar to the method suggested here). http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzUxNTk1fENoaWxkSUQ9MzQxMzYwfFR5cGU9MQ==&t=1

    The reality is though that these type of systems end up being close to what can be termed a “calendar year” result, which is essentially the profit/loss reported by a company in a given year. This naturally includes profit/loss emerging from business conducted in prior years as measured in accordance with accounting rules. So in essense compensation metrics that are related to accounting financials are doing much of what you describe. One may want to adjust the way performance is measured away from accounting rules to make it more in line with the reality of how it impact the business, but this does have the disadvantage of introducing a certain amount of subjectivity into the metric.

  44. Compensation in financial services — at least at the Wall Street trading level — is more problematic in its absolute level than its structure. *Both* contribute a sizable amount to systemic risk and the misallocation of our brightest minds, but I can’t help but think that paying people enough to retire on in only a decade or so is dangerous, particularly when so much externalized financial risk (to the individual) is involved. (I say financial risk because it’s not particularly dangerous if, say, Google, pays its people millions of dollars per year. Google disappearing would majorly suck, but the economy would soldier on pretty easily).

    Some good posts from interfluidity (http://www.interfluidity.com/v2/309.html) and Felix Salmon (http://blogs.reuters.com/felix-salmon/2009/05/04/the-inefficient-financial-sector/) have pointed out the monetization of government guarantees and the inefficiency of the financial sector, respectively. It seems like cutting banks off at the knees with an asset cap, as Simon and James have proposed, or setting capital requirements significantly higher would go a long way toward increasing competitiveness in the industry and stopping the monetization of TBTF. At that point, compensation would partially take care of itself, as shareholders could no longer count on artificially high ROEs shouldered by taxpayers. Maybe then they’d have to second guess paying out 50% of revenues to traders with no questions asked.

  45. Pay them whatever, just dont bail them out when it goes bad.

  46. Off-balance-sheet accounting was GAAP, so don’t fool yourselves. Some, like Citi, may have pushed it farther than intended but the concept was and still is GAAP. God help the SEC if they try to change it and it is very difficult for the SEC to allege that a practice that is GAAP is also fraudulent. (Full disclosure: I retired from the SEC enforcement division.) How many federal district judges would agree with that position?
    As long as we allow off-balance-sheet accounting we will have fraudulent accounting (redundant?). The SEC has the option of requiring full disclosure of the practice and its impact. They haven’t done it and they are unlikely to do it because Congress-bought and paid for by the monied interests-will intervene to prevent it.

  47. Let me make sure I have it clear (no snark or sarcasm in my tone here) so that I fully understand the path you’ve laid out:

    There IS no way for normal people to prevent the self-destruction of the current system, as it’s far too large and corrupt. The only way out is a step back to how things used to be done financially. It sounds like a good plan, and it’s one that I’ve sort of been trending toward anyway in my personal life, so it’s good to know my instincts seem to be slanted toward good choices. I will continue that path with a bit more confidence.

    How can we possibly convince the majority of the sleep-walking public to join us in dismantling things to begin with? Many of them are so hopelessly tied to the current system that they will close their eyes, cover their ears, and shout “LALALACAN’THEARYOULALALA” like 5 year olds. For the ideas you speak of to work, we need as many people as possible moving *together* to even make a dent in the system. Will we just have to wait for another LARGER crash, then seize on the populist anger to get results?

    Finally, in 20-30 years, what’s to keep us from just being back in the same boat again? We dismantle these broken systems, build anew from smaller pieces, and try again. There ARE advantages to national (and international) collaboration of brain power to build new and ultimately beneficial technologies. I firmly believe that. Somebody will be there trying to exploit that fact for their rent-seeking; how will we prevent them from doing the same damage again?

  48. Simon’s idea strikes me as brilliant, and I hope it’s not only because it’s the approach that I’ve long thought ought to dominate.

    All of the objections that James comes up with seem to me to be insignificant by comparison to the benefits to be gained by making this switch. For example, “it [a firm that tries this] would be at a competitive disadvantage” isn’t necessarily true for an investment bank which is seeking the best long-term performance, because prospective new hires who are confident of their superiority will find extremely attractive a compensation scheme which really is geared to rewarding such superiority. However, I certainly do agree with James’s view that regulators ought to reward firms for making this switch, inasmuch as (obviously) the free market does not; the free market doesn’t reward such excellence.