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{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|Employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}}Financial instruments designed to manage the risk of employment variability. First developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}.
{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|Employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}}Financial instruments designed to manage the risk of employment variability. First developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}.
====Genesis====
====Genesis====
{{Drop|W|hen midway through}} his annual rant about the meaningless of life as viewed through the lens of his income, Hunter Barkley had an epiphany. He knew his own pay packet was a material, unhedged contingency in his life: the perpetual disappointment it rained upon his sorry existence had little to do with his own acumen. He knew, too, that this experience was common to the great dreary sweep of humankind as it clambered it's bleary across the indifferent clanking gears of global industry.  
{{Drop|W|hen midway through}} his annual rant about the meaningless of life as viewed through the lens of income, Hunter Barkley had an epiphany. He knew his own pay packet was an unhedged contingency in his life: the perpetual disappointment it rained upon his sorry existence was well beyond his practical control. He knew, too, that his experience was common to the great dreary sweep of humankind as it blearily clambered across the clanking gears of global industry.  


That was not his revelation, but this: just as that great collected horde of mortgaged servants were at the several whims of wanton Gods, so too were their employers. They must be: after all, they were the other side of the same trade.  
That was not his revelation, but this: just as that great collected horde of wage-slaves were at the several whims of wanton Gods, so too were their bosses. Logically, they ''must'' be: they were on the other side of the same trade.  


Firms were long what their servants were short —only at a ''far greater scale''. Businesses — particularly ''boring'' businesses — bobbed ineptly at the mercy of hysteria’s fickle ebb and flow.
Ergo, firms were long what their servants were short — only at a ''far greater scale''. Businesses — particularly ''boring'' businesses — bobbed ineptly at the mercy of hysteria’s fickle ebb and flow.


A worker had a single measure of this risk. Her master had literally thousands. An employer of turgid multitudes — a good-sized bank, for example — was in a constant war to prevent pedestrian, but vital, operations personnel from being lured away.   
A single servant has one unit measure of this risk; her master has, literally, ''thousands''. An employer of turgid multitudes — a good-sized bank, for example — would be locked in constant struggle with those batty tides just to prevent its pedestrian, but vital, operations personnel from being washed away.   


The foe upon this reckoning were the waves of exciting but stupid enterprises propelled at any time by the belief that [[this time is different|things were different]]. Why they believed this scarcely mattered, but it often had to do with technology.<ref>inventions like the internet, web commerce, credit derivatives, distributed ledgers, large language models are examples. </ref>  
The foe upon this reckoning was the swarm of exciting but stupid enterprises propelled at any time by that deluded current of techno-optimism. ''Why'' they believed [[this time is different|things to be different]] this time scarcely mattered — there was always some hare-brained hot take to glom onto — but it often had to do with technology.<ref> Inventions like the internet, web commerce, credit derivatives, [[distributed ledger|distributed ledgers]], [[large language model|large language models]] are typical examples.</ref>  


At the height of any such craze, merely stemming the stampede could cost a bank ''billions'' of dollars.<ref>The maths was like so: assume 40,000 people at an average total compensation of about $300,000, with a ratio of discretionary to fixed of between 20% and 50%</ref> As the inflated expectations in the new sector foundered, the bank would find itself spoilt for excellent choice but committed to absurd remuneration packages for those it had managed to retain. Its usual approach to rectification — tactical redundancy — was expensive and tended to dent morale, even among those who got to stay.
At the height of any such craze, merely stemming an outward stampede could cost a bank ''billions'' of dollars. Then, as the inflated expectations in the new sector foundered, the bank would find itself spoilt for choice of excellent available workers, but absurdly overcommitted to pay those it had managed to retain. The usual means of correcting this was tactical redundancy, but that was expensive and tended to dent the morale of even those who got to stay.


In any case, this employment cost volatility bore little relation to the bank’s own performance, none at all to its employees’. It was a simple measure of that background market euphoria.  
In any case, this employment cost volatility bore little relation to the bank’s own performance, none at all to its employees’. It was a simple measure of that background market euphoria.  
====An idea====
{{drop|H|unter Barkley’s experience}} as a junior [[interest rate swap]]s trader provided a perfect analogy and gave him an idea. ''Why not hedge away this volatility?''


''Why couldn't you hedge away this voltility?'' Barkley’s experience trading [[interest rate swap]]s provided a perfect analogy.
Different types of firm were “long” or “short” this babbling hysteria, which he labelled ''π'', at different points in the hype cycle.  “Π” came from the Greek παράνοια, (''paranoia''), and conveyed the pleasing idea of not just madness but circularity, running on a hamster wheel and so on — all fundamental properties of the employment relationship.


Different types of firm were “long” or “short” this babbling hysteria, which he labelled ''π'',<ref>From the Greek παράνοια, (''paranoia''). It was also pleasing that π conveys circularity, running on a hamster wheel and so on, all of which Barkley recognised to be fundamental properties of the employment relationship.</ref>  at different points in the hype cycle.
At its onset, “[[Trad fi|trad-fi]]”, “bricks-and-mortar” firms are [[Short|''short'']], and delusional start-ups, [[Long|''long'']] ''π''. Eventually, the lunacy levels off, reality sets in and employment relations [[Mean reversion|revert to mean]], whereupon the ''π'' curve flattens and then eventually inverts.  
 
At its onset, “[[Trad fi|trad-fi]]”, “bricks-and-mortar” firms are [[Short|''short'']], and delusional start-ups, [[Long|''long'']] ''π''. Eventually, the lunacy levels off. As reality sets in and employment relations [[Mean reversion|revert to mean]], the ''π'' curve flattens and then eventually inverts.  


If one could only match off long and short exposures, Barkley realised, firms on either side of the bid could hedge their exposure to π.   
If one could only match off long and short exposures, Barkley realised, firms on either side of the bid could hedge their exposure to π.   


In one of those cruel ironies to whose martial cadence our lives keep time, before he could figure out a way of monetising his idea Barkley was laid off and, shortly afterwards, imprisoned for manipulating [[LIBOR]].   
In one of those cruel ironies to whose martial cadence our lives keep time, before he could figure out a way of monetising his idea, Hunter Barkley was laid off and, shortly afterwards, imprisoned for manipulating [[LIBOR]].   


==== A chance encounter at a bar in West London ====
==== A chance encounter at a bar in West London ====
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The market needed an observable, objective measure of “prevailing startup insanity”, which Barkley denoted “''π”''. He had just the means to achieve it. Under the auspices of the British Human Capital Managers’ Association (BHCMA), he arranged for a committee of fashionable startups to meet each afternoon in a WeWork in Shoreditch and over kombucha martinis to state publicly, in front of a live panel of [[venture capitalist]]<nowiki/>s, how much they would be prepared to pay an underperforming settlements and reconciliations clerk to join them and drive customer engagement. They expressed this as a premium of discount to ''π''', being the equivalent value for the preceding day.
The market needed an observable, objective measure of “prevailing startup insanity”, which Barkley denoted “''π”''. He had just the means to achieve it. Under the auspices of the British Human Capital Managers’ Association (BHCMA), he arranged for a committee of fashionable startups to meet each afternoon in a WeWork in Shoreditch and over kombucha martinis to state publicly, in front of a live panel of [[venture capitalist]]<nowiki/>s, how much they would be prepared to pay an underperforming settlements and reconciliations clerk to join them and drive customer engagement. They expressed this as a premium of discount to ''π''', being the equivalent value for the preceding day.


The BHCMA would trim the top and bottom estimates, average the remainder and compile and publish the trimmed arithmetic mean rate as the [[London Inter-Employer Basic Offered Rate]] ([[LIEBOR|PIEBOR]]). PIEBOR quickly became the ''de facto''  measure of  ''π'' and was soon factored into the “floating” leg of [[employment rate swap]]s as standard.
The BHCMA would trim the top and bottom estimates, average the remainder and compile and publish the trimmed arithmetic mean rate as the [[London Inter-Employer Basic Offered Rate]] ([[PIEBOR]]). PIEBOR quickly became the ''de facto''  measure of  ''π'' and was soon factored into the “floating” leg of [[employment rate swap]]s as standard.


==== Credibility spread ====
==== Credibility spread ====
{{Drop|L|IEBOR was not}} the only component of an individual swap: short counterparties would also be assigned a weighted average “credibility spread” over (or under) the prevailing [[LIEBOR]] rate. This was a competence assessment made by independent [[human capital]] rating agencies of the median quality of a given counterparty’s staff, routinely marked to market and adjusted by way of a 360° [[performance appraisal|credibility appraisal]] process.
{{Drop|P|IEBOR was not}} the only component of an individual swap: short counterparties would also be assigned a weighted average “credibility spread” over (or under) the prevailing [[PIEBOR]] rate. This was a competence assessment made by independent [[human capital]] rating agencies of the median quality of a given counterparty’s staff, routinely marked to market and adjusted by way of a 360° [[performance appraisal|credibility appraisal]] process.


The credibility rating could yield anomalies. Though HR departments assiduously graded staff against an internal 5-point scoring metric and would [[Force-ranking|force-rank]] staff to a curve, there remained risks that employee “alpha” could be mispriced or too overly concentrated. Furthermore, interdepartmental secondments were beset by credibility rating, diversity arbitrage and [[cheapest to deliver|cheapest-to-deliver]] scandals, especially over quarter end.
The credibility rating could yield anomalies. Though HR departments assiduously graded staff against an internal 5-point scoring metric and would [[Force-ranking|force-rank]] staff to a curve, there remained risks that employee “alpha” could be mispriced or too overly concentrated. Furthermore, interdepartmental secondments were beset by credibility rating, diversity arbitrage and [[cheapest to deliver|cheapest-to-deliver]] scandals, especially over quarter end.
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