3. At the end of 2007 the prevalent bankers' compensation structure came into spotlight. For instance, on January 9, 2008 Raghuram Rajan wrote in FT: "Banks have recently been acknowledging enormous losses, yet those losses are barely reflected in employee compensation. For example, Morgan Stanley announced a $9.4bn charge-off in the fourth quarter and at the same time increased its bonus pool by 18 per cent." Can this quote help relating bankers' return (employees, NOT bank shareholders!) structure to one of the asymmetric information problems? If yes, why? 6
3. At the end of 2007 the prevalent bankers' compensation structure came into spotlight. For instance, on January 9, 2008 Raghuram Rajan wrote in FT: "Banks have recently been acknowledging enormous losses, yet those losses are barely reflected in employee compensation. For example, Morgan Stanley announced a $9.4bn charge-off in the fourth quarter and at the same time increased its bonus pool by 18 per cent." Can this quote help relating bankers' return (employees, NOT bank shareholders!) structure to one of the asymmetric information problems? If yes, why? 6
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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13.
Transcribed Image Text:3. At the end of 2007 the prevalent bankers' compensation structure came into spotlight.
For instance, on January 9, 2008 Raghuram Rajan wrote in FT: "Banks have recently
been acknowledging enormous losses, yet those losses are barely reflected in employee
compensation. For example, Morgan Stanley announced a $9.4bn charge-off in the fourth
quarter and at the same time increased its bonus pool by 18 per cent." Can this quote
help relating bankers' return (employees, NOT bank shareholders!) structure to one of
the asymmetric information problems? If yes, why? 6
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