Employment derivatives: Difference between revisions

Firms — particularly boring ones — were short what their servants were long, only at far greater scale. As the hype-cycle crested and troughed, unglamorous firms bobbed ineptly upon Hysterion’s fickle ebb and flow.

Now, thought Barkley: if a single worker has but one unit measure of this risk the firm she works for her has ''thousands''.  

A corporation employing tired multitudes to turn its turgid wheels — a good-sized bank, say — is locked in constant struggle with this tide of batty expectation just to stop it's human capital being washed away.   

At fault were the exciting but stupid technology enterprises whose sails the voguish delusion filled.

In times of giddy optimism, stemming this outward tide could cost a bank ''billions'' of dollars. Then, as inflated expectations foundered, the tide would turn. Throngs of good workers would be suddenly available on the cheap. Firms could rebalance by tactical redundancy, but it was expensive and tended to dent morale somewhat.  

In any case, this “employment cost volatility” bore little relation to the bank’s own performance and none at all to its employees’. The bank’s personnel needs had not changed across the cycle. Surely it would be better just to keep the same staff throughout?

{{drop|H|unter Barkley’s experience}} as an [[interest rate swap]]s trader gave him an idea. ''Why not hedge this volatility?''

Different sectors were “long” or “short” this crowd madness, which he labelled ''[[π]]'', at different points in the cycle. (“[[Π]]” came from the Greek παράνοια, (''paranoia''). It conveyed the pleasing ideas not just of collective madness but circularity, running on a hamster wheel, Ourboros’ tail and so on — all fundamental properties of the employment relationship.)  

If one could only match off these long and short exposures across the cycle, firms on either side of the bid could hedge their [[π]] exposure to the betterment of all.   

In one of those ironies to whose martial cadence our lives keep bitter time, before he could monetise his idea, Barkley was laid off and, shortly afterwards, imprisoned for manipulating [[LIBOR]].

{{Drop|A|s she neared}} her [[gin horizon]], HR manager Anita Dochter embarked upon an elliptical disquisition to her old pal [[Cass Mälstrom]]. Dochter was agitated about the stream of defections from the sleepy mid-market broker where she worked. It was haemorrhaging hundreds of compliance and onboarding staff each month to venture capital-funded dotcom start-ups.  

Mälstrom herself was one: a month earlier she’d been bid away from a [[workstream lead]] role in the firm’s [[client money]] compliance change management remediation programme and was now [[Co-head|Co-deputy CIO]] of [[legaltech]] darling [[lexrifyly]].

Her old chum was livid. “We ''need'' our people, Cass. They do productive things. You know, [[MIS]] reports. [[Steerco]] [[deck]]s. Operational [[deep dive]]s. [[Netting]] audits. Who will co-lead the client money remediation workstream if you take all our clunkers? Who will manage our [[risk taxonomy]]? Unless we pay ''your'' stupid rates, which we cannot afford to do —” at this point, Dochter fell off her stool briefly — “and give everyone free fruit, safe spaces and a soft play area, they won’t stay with us. But, ''you'',” she hissed, clambering back up and jabbing [[Cass Mälstrom|Mälstrom]] on the lapel, “right now, ''you'' don’t need ''any'' staff. You just need to show your investors you are on point doing fashionably insane things. That does not take actual staff. So stop taking ours.”

Hunter Barkley, fresh out of gaol and making ends meet waiting tables, happened to be rostered on at ''[[Chez Guevara]]'' that evening.  

Presenting them with the check and some after-dinner mints, he cleared his throat. “Forgive me, but I couldn’t help overhearing. If ''you''” — he indicated Dochter — “don’t want to lose staff —

“— and ''you''” — he looked at Mälstrom — “don’t need them —”

“— then why not hedge your respective employment rate risks with a swap?”

Mälstrom gaped. Dochter fell off her stool again.

{{Drop|S|o was the}} very first “[[employment rate swap]]” conceived. For an initial period of three years, Dochter ’s firm Wickliffe Hampton would pay its entire operations wage bill, controlled for performance, to lexrifyly. In return, lexrifyly would pay its absurd, grossly inflated but as yet unallocated budget for an equivalent team — there was no such team, of course: this was the point — to Wickliffe Hampton.<ref>This was slightly complicated as it was denominated in [[crypto]] and needed to be converted back to Sterling.  </ref>  

This way, Wickliffe Hampton had the cash required to preemptively bid back its restless staff, and lexrifyly could guilelessly piddle its investors’ cash against a wall without troubling the operating resiliency of the banking sector, or an [[Human resources|HR department]] it did not currently have.   

If this seemed like a bad trade for lexrifyly at the outset, it was not: firstly, cash was, [[Q.E.D.]] cheap, and lexrifyly didn’t care: what was money but fiat slavery? Secondly, Barkley’s forward curve models suggested that the looney bid could invert in a number of quite likely circumstances: a market crash, hawkish monetary policy or the sudden onset of incipient tech winter.  

For these contingencies the employment rate swap was a natural hedge. While wide-scale redundancies and hiring freezes gripped the fintech sector, the boring old banking industry would box on as it always had. A fintech short ''[[π]]'' under an [[Employment rate swap|ERS]] would have a decent cashflow coming in to keep the lights on.   

{{Drop|I|t was easy}} enough to quantify a bank’s wage bill since, once you controlled it for hysteria, it was more or less fixed. But what about the ever-changing hypothetical wage bill of a startup? How to gauge that in real-time? What was to stop a startup gaming the rate by pretending its preparedness to pay stupid money was lower than it really was?   

 

Under the auspices of the British Human Capital Managers’ Association (BHCMA), a committee of fashionable startups would meet each afternoon in a WeWork in Shoreditch and over kombucha martinis to state publicly, in front of a panel of [[venture capitalist]]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 or discount to ''[[π]]''', being the equivalent value for the preceding day. The venture capitalists would vote by throwing money — literally, from a stack of bills on the table before them — at the “pitching” start-ups.  

The BHCMA would weight the submissions by reference to the volume of cash the venture capitalists lobbeda at each startup, 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]]. Quickly “[[PIEBOR]],” as it was known, became the ''de facto''  measure of ''[[π]]'' and was soon factored into the “floating” leg of [[employment rate swap]]s as standard.