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Employment derivatives: Difference between revisions
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{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}} | {{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}} | ||
A financial asset class developed in the early part of this millennium by derivatives pioneer and | A financial asset class developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}. | ||
When midway through his customary annual rant about the meagreness of his pay packet, it | When midway through his customary annual rant about the meaningless of his life and meagreness of his pay packet, it struck Barkley — an amateur fi-fi novelist and financial services naturalist — that just as the variable cost of his own employment was a material, and largely unhedged, contingency — Barkley considered himself permanently short a very ugly option — so too was everyone else in modern finance and therefore, the other side of that trade, but on a greatly levered magnitude, were banks. | ||
A good-sized investment bank, he reasoned, would have an annual ''variance'' in employee compensation, without accounting for any ''changes'' in employment, | A good-sized investment bank, he reasoned, would have an annual ''variance'' in employee compensation, without accounting for any ''changes'' in employment, of at least $2bn.<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> | ||
They would be like [[interest rate swap|interest rate swaps]]. A bunch of large employers would submit, daily, how much they would be prepared to pay to hire established categories of worker, to derive some kind of London Inter-Employer Bid-Offer Rate (can we call this LIEBOR?). Then the British Human Capital Managers Association would compile and publish a list of rates. Employer could swap out their fixed costs for a floating rate, thereby hedging employment costs. Employees could do the same, hedging against their intrinsic loyalty discount, and restricting employee moves to genuine changes in role, or idiosyncratic hatred of boss, rather than just the need to rebenchmark periodically. | They would be like [[interest rate swap|interest rate swaps]]. A bunch of large employers would submit, daily, how much they would be prepared to pay to hire established categories of worker, to derive some kind of London Inter-Employer Bid-Offer Rate (can we call this LIEBOR?). Then the British Human Capital Managers Association would compile and publish a list of rates. Employer could swap out their fixed costs for a floating rate, thereby hedging employment costs. Employees could do the same, hedging against their intrinsic loyalty discount, and restricting employee moves to genuine changes in role, or idiosyncratic hatred of boss, rather than just the need to rebenchmark periodically. | ||